Do Chain Affiliation and Store Prestige Affect Shopping Center Rents

This study aims at testing whether, and to what extent, chain affiliation within regional and super-regional shopping centers affects store rent levels. In this paper, based on the hedonic methodology, international, national, provincial as well as local chains are considered together with independent stores. The impact of store prestige on rents is also assessed. The research is performed in a Canadian context, with eleven regional and super-regional shopping centres located in Quebec City (5) and Montreal (6) being used, totalling over three million square feet of gross leasable area (GLA). Anchor stores and storage space are excluded from the analysis. Once filtered, the database consists of 1,477 valid leases running over the 2000-2003 period. Unit base rent is used as the dependent variable while regressors include: GLA, the shopping center weighted age, a location variable, lease duration, a time variable, the percentage rent rate, a series of retail category variables, the shopping center concentration index, an economic potential index, the retail chain affiliation level and, finally, a store level-of-prestige descriptor. Findings suggest that, even when micro-market influences are accounted for, chain-affiliated stores are granted a rent discount by landlords, with the latter ranging between 4.9% (Quebec City) and 6.0% (Montreal). Findings also suggest that a substantial rent premium is assigned to high-prestige stores. Based on this research, the high-prestige rent premium stands at 10.5% for Quebec City shopping centers while it reaches 13.0% for Montreal retail establishments.