Diversifying the Tenant Base

Q: The ground-floor tenants of my office building are moving out, and I’m thinking of leasing that space to retailers. How should I decide which type of tenant would make a good fit for the building?

A: It’s important to be careful when choosing ground-floor retail tenants. Ground-floor retail tenants can define the image of an office building. For example, regardless of how prestigious a building’s upstairs tenants are, the building can become known by the tenants that occupy the ground floor.

A discount clothier or a bargain electronics store doesn’t offer the same cachet as a high-end fashion apparel store or an international fine jeweler. A ground-floor tenant that conveys an upscale image is more likely to attract tenants to the rest of the building.

For example, one Manhattan office building’s retail tenants on the ground floor were a pizzeria, a cell phone store, and a candy store. As part of a makeover of the building, the owner replaced those stores with a national bank. That one change in ground-floor tenants boosted the building’s marketability, and made it more desirable to visitors and upscale, prospective tenants.