Indoor Playgrounds - The Right Location
By Dave Wilson
Page 1, 2
When you think of Profit Centers, you normally think: Birthday Parties, Food Sales or Games Income! However, when you scroll down a Profit & Loss statement, you will see that line items like Lease Cost and Loans Payable have just as strong an impact on overall costs, and therefore, the total final profit picture – your bottom line!
When you begin to go forward with your project in earnest, you will immediately see the challenge of finding the proper space for your use at the right price and conditions and how it will effect all the other parts of your project. In some cases, it may be the major reason why you will have to invest $ 500,000 instead of only $ 300,000 – and that’s a proven fact!
The purpose of this article is to try and help you focus on how to search for the best space available and how to try and secure it for lease at the best price and terms possible.
SPACE: Supply & Demand May Present One of Your Biggest Challenges !
This is usually the ‘juggernaut’ in most projects! Clients often do not have any control over the space they need to find before forward with their concept. There is one undeniable fact which will define the financial requirements of your project: it is the local supply and demand factors associated with space availability in your area.
This will determine, for example, how much in leasehold improvements a Landlord might be willing to supply, or not supply; what the base per square foot lease rate in your market is; what the CAM costs are (costs for common area maintenance, snow plowing, etc.)...and how flexible, if at all, a Landlord might be with regard to negotiation and possible give-backs. The supply of, or demand for, space in your particular area will have a strong impact on your project’s overall cost, your investment requirement and in some cases, it may even limit the scope of your project.
What Should Your Space Realistically Cost? Where Do You Find It?
The good news is: in the FEC (Family Entertainment Center) industry, the old real estate adage of Location, Location, Location does not usually apply.
Generally speaking, FEC locations are not located in new or high-end retail space. In most cases, that ‘Field of Dreams’ adage does work: If you build it, they will come! The area you are looking to locate in has to be a safe, relatively clean neighborhood, with good parking and easy accessibility. It does not have to be in a high traffic, high visibility retail area. Your customers will find you via your web site, initial advertising and, mostly, by word of mouth.
If you have done some research already on new or high-end mall space in your area, you probably have encountered cost per SF numbers for space in these locations that will tend to make you gag! Lease rates quoted can be anywhere from $ 25 – $ 30 per SF and up, with CAM charges at an additional $ 2.50 to $ 5.00 per foot - outrageous numbers!
The Retail Industry functions on sales per square foot, with most retail stores of a limited size. The Family Entertainment Industry functions on the best use of a significant amount of square footage to accomplish sales. Simply put, to provide an FEC space that satisfies the complete demands of their customer will require operators to need too much square footage at too high a cost in a new, high-end retail mall situation.
The ‘Other’ Types of Space:
Of all the operations we have helped open in the past 6 years, about 80 % are in spaces
that would be considered light industrial, business park or ‘old’ retail’ settings. These are
the normal choices associated with the type of space used for most Birthday Party places
and FEC locations….and with good reason! The costs are much lower and the space is usually better suited for an FEC or Birthday Party concept.
Light industrial is exactly as it sounds: 4,000 – 5,000 SF units, generally with small office areas up front, 16’ – 22’ high ceilings and fairly open, unencumbered space in the back section. The upside to these spaces are much lower lease rates, in the range of $ 6 - $ 10 / SF and lower Cam charges. The downside is that you are often offered a ‘vanilla box’, whereby you must provide all improvements at your cost, sometimes even air conditioning, which itself can cost $ 40,000 and up. Further, these spaces often require Use Variances – a process which can take as long as 3 – 6 months. The cost for the build out of a 10,000 SF light industrial space can easily top $ 150,000.
Business Parks are usually slightly higher in lease rates but they are normally complexes that are better kept up, in terms of grounds and maintenance. However, Business Parks often have limited ceiling height, so the 3 to 4 level Soft Modular Play Unit or a tall Inflatable will not work here and a strong Design becomes more important. However, the upside can be in taking over an existing location that may be in very good condition and have bathrooms, common areas, air conditioning and a kitchen area already built out and in place – Thus saving valuable initial investment dollars. However, specifically for the limitations in height and layout, Business Parks are not the optimum choice for FEC or Birthday Party places.
Look For That ‘Ugly Duckling’!
What are loosely defined as ‘Old Retail Locations’ can be hidden gold mines! With old retail, or ‘Ugly Duckling’ space, if you will, you would be looking to lease a unit in a mall or strip mall that may be on the down side and has seen better days. It may be your task to bring customers into what is presently considered a ‘dead’ shopping location. This will be your greatest risk and challenge!
However, with a bit of dedication and thorough searching, it may be possible to find that one ‘old retail’ location in your town that is just experiencing renovation or has a new owner in the picture. These locations in flux will generally have a landlord that putting significant investment dollars into revitalizing the property and getting spaces leased again. He will usually be open to negotiating your lease terms and to possibly paying for some or all of your leasehold improvements. You may also have your choice of multiple spaces and can pick the one that most closely fits your requirements.
The most important positives with these types of ‘old retail’ locations are: (a) The space is generally an approved use for your project already (b) There is usually more than adequate parking available (c) Some or much of your build out and services may possibly be in place already and/ or need only cosmetic work (d) Finally, you may find a landlord that will be amenable to negotiation on all parts of the deal: lease and CAM rates, lease periods, security amounts, leasehold improvements and, possibly, initial rental credits.
Next > "Some Hints in Searching for Your Space"
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