How to Lease a Retail Property With a Formula Retail Ordinance

Formula Retail Ordinances have sprung up in select markets, and they can create an extra layer of challenges when leasing retail assets. In an effort to protect local and small businesses, new leases require planning clearance through the city. Brokerage firm Beta recently completed leasing Malibu Village, a 50,000-square-foot retail center in Malibu, which has this ordinance within its city limits.

“To get the lease approved by the city, a tenant can sign a lease if they have 10 or under retail locations,” James Keefe, senior account manager at Beta, tells GlobeSt.com. “Once they have signed the lease they can open up additional stores over 10 but they must open in Malibu first before going over 10. The process then becomes more challenging due to the criteria as the tenants you begin to work with are less familiar with the leasing process so there is a more hands-on approach.”

While there are a handful of markets with this ordinance in place, particularly markets with a lot of growth, the ordinance is still rare. “It is uncommon in Southern California. Downtown Manhattan Beach has a very scaled down ordinance that pertains to realtor offices, San Francisco has an ordinance and Coronado also has an ordinance in place,” says Keefe. “I believe that across the US there will be smaller towns that fight hard to keep their small town charm and will adopt similar ordinances for retail and restaurants.”

The biggest challenge of a Formula Retail Ordinance is that there is a smaller and more select group of tenants for a shopping center. “The pool of tenants becomes smaller so our marketing strategy becomes more targeted to businesses that fit the demographics of the center, meet the ordinance criteria, and have the infrastructure to open additional brick-and-mortar locations,” says Keefe.

However, in the Los Angeles area, small boutiques are thriving and often preferred to larger chains in certain sub and micromarkets. “Consumers are becoming more loyal to smaller brands with a mission that they identify with and are less enticed to shop at bigger corporations that they feel their values aren’t aligned,” says Keefe. “There is a high demand from consumers and landlords for one-off brands in the L.A. retail market but physical retail is challenging for many smaller brands to navigate.”

The popularity of smaller brands follows a similar trend curve as national brands. “F&B are rapidly growing due to the consumers preference of unique dining experiences over chain restaurants,” says Keefe. “Many L.A. based apparel brands are experimenting with brick-and-mortar retail through collaborations with existing stores that are curated to providing consumers with local brands, Wittmore at Malibu Village is an example of this.