In retail centers or office complexes, landlords often need to find ways to attract new, long-term tenants. One way to do so is to secure an anchor tenant, which will increase traffic to the area and draw in other tenants.
An anchor tenant — sometimes referred to as a key tenant, prime tenant or draw tenant — is the large, leading tenant in a shopping center or office space. Anchor tenants help draw consumers into an area cbecause of their size or well-known name. This draw improves business for other smaller tenants in the complex, making prospective tenants more likely to want to rent retail or office space in the area.
An anchor tenant essentially drives traffic, said commercial real estate and business broker Jason Keyz. “So an anchor tenant is usually the tenant with the most prominent, recognizable brand name,” he added.
“Typically, they’re bigger box brands — national tenants that have the capital to put up and commit to triple net leases. So they’re going to be the long, sustained member of the community,” said Patrick Grimes, the CEO of Invest on Main Street.
Because anchor tenants impact other businesses in the complex and are responsible for drawing both customers as well as potential tenants, anchor tenants are often given reduced rent per square foot. They might also have some say in how the rest of the center is rented out.
While some people think anchor tenants are the biggest store in the complex, Keyz pointed out that this is not always the case. “It’s the most recognizable brand that would draw the most traffic.”
Having an anchor tenant in your commercial complex comes with a number of advantages. For starters, anchor tenants draw in customers and other renters. This benefit is particularly advantageous for landlords with percentage leases whose rent amounts depend on how successful or unsuccessful a business is.
“The benefit of having an anchor tenant is it’s a recognizable brand that’s going to create consistent, regular traffic to the center,” Keyz noted.
These big-brand anchor tenants also provide increased credibility for the development. For instance, if potential tenants see a big name store in a strip mall, like Apple, Nordstrom or Sears, they are more likely to sign a long-term lease in that strip mall. Tenants feel confident that a large, well-known store will generate foot traffic, thereby increasing the number of customers in their own shop, and “increasing the value of the center because of the traffic that goes through it,” Keyz said.
“You could substantially increase your rent if you have an anchor tenant,” added Keyz. “The landlord is literally increasing the value of the shopping center.”
The downside of anchor stores is that when they leave, their co-tenants could request lower rent or termination of their lease if they have a co-tenancy clause written into their lease agreement. Get a commercial real estate lawyer to help you keep an eye out for this type of clause before signing a lease.
There are several types of anchor tenants across the country, each with unique benefits.
For a retail complex like a strip mall, some examples of an anchor tenant include a Whole Foods, Target or Wal-Mart. These are large, well-known stores that exist nationwide, and they always have customers.
“Wal-Mart shopping center would likely be super valuable to then target something like a check cashing business, or smoke shops or something that you target to the demographic,” Keyz posited.
Other examples of anchor tenants include food drive-throughs that guarantee traffic to the complex. On the West Coast, for example, Keyz said, In-N-Out Burger is a big anchor tenant.
Grimes, who develops and invests in multifamily apartment communities, broke it down even further in terms of what anchor tenants he looks for to be near the buildings he develops. “If we’re buying an A-class building, then we’re looking for tenants that are Whole Foods, Top Golf, Equinox fitness centers. Those are the nicer, new, luxury apartment complexes.”
However, he continues, “If you’re trying to build a B or C class building for workforce housing, you want to see a Wal-Mart, a Target, a Starbucks.”
So anchor tenants not only draw consumers into a shopping area, but they also draw residents into nearby apartments.
In an office building or office complex, an anchor tenant would be any large company like a bank or Fortune 500 company. A big-name tenant like Wells Fargo, for instance, would establish credibility for landlords trying to fill vacancies. Wells Fargo would create some validity that the building is a good place to do business.
Attracting anchor tenants is all about numbers and data, Grimes said. Anchor tenants will look at the demographics, income, job growth and population of an area before deciding to open up a Whole Foods, for instance.
“If there’s nothing but bail bonds, pawn shops and check cashing, then we shouldn’t be putting in a Whole Foods,” Grimes explained. “If you’re a commercial area, then embrace your demographic, and try to attract the type of anchor tenant that fits the demographic in that area.”
In addition, Keyz advised getting a good broker, as it’s difficult for one landlord to make contact with big-name retailers. A broker, on the other hand, can make the calls, search the commercial real estate databases and get in contact with someone in the real estate department of Starbucks, for instance. A broker or brokerage company will be able to reach out to these large brands and advertise your commercial property in a way that attracts anchor tenants, Keyz said.
Anchor tenants are important in large retail or office complexes to draw customers as well as other tenants to the area. If you’re a landlord looking to attract an anchor tenant, the best way to do so is to research the demographics of your area and contact a brokerage firm to put you in touch with big name businesses.
Do anchor tenants pay less rent?
Sometimes anchor tenants get a discount in rent because of their ability to lure more tenants into the complex.
What is an anchor subtenant?
An anchor subtenant is someone who subleases an anchor tenant’s rental property, or who shares part of the space as a sub-lessee. Often, though, landlords either do not allow anchor subtenants or do not allow subtenants who would be seen as competitors to another renter on the property.