Retail is the most location-sensitive category in commercial real estate. Two units in the same plaza can perform very differently depending on sightlines, where customers enter, and who occupies the unit next door. Whether you are leasing a single unit or buying the plaza, the details that determine outcomes are rarely visible in a listing.
For tenants: location within the plaza matters as much as the plaza
Before comparing rates, evaluate the specific unit:
- Visibility from the road and whether signage is permitted where it would actually be seen
- Ingress and egress, how easily customers turn in and out. A median preventing left turns can meaningfully reduce traffic.
- Parking ratio and layout, particularly proximity of parking to your unit
- Neighbouring tenants, complementary businesses generate shared traffic; a vacant or poorly performing neighbour does the opposite
- The anchor. A grocery store, pharmacy, or similar draw generates the foot traffic smaller units depend on
Retail-specific lease clauses
Exclusivity. Prevents the landlord leasing to a direct competitor within the plaza. For a business whose customers choose partly on convenience, this is among the most valuable clauses available. Define it carefully, “no other coffee shop” reads differently from “no other business selling brewed coffee,” and the second protects you from a bakery that adds espresso.
Co-tenancy. Ties your obligations to the presence of the anchor or a minimum occupancy level. If the anchor closes, a co-tenancy clause may allow reduced rent or an exit. Landlords resist these and smaller tenants rarely obtain them, but they are worth requesting.
Percentage rent. Common in enclosed malls and some plazas: base rent plus a percentage of sales above a threshold. If you agree to it, confirm precisely how sales are defined, whether returns, online orders fulfilled in-store, and taxes are included changes the number materially.
Continuous operation. Requires you to remain open during specified hours. Reasonable in principle, but confirm the hours suit your business model.
Restoration. Retail build-outs are extensive, and returning the unit to base condition at your cost can be a significant end-of-term expense. Negotiate what must be removed before you build it.
If you are opening a restaurant, verify infrastructure first
Converting a general retail unit to food service is often far more expensive than expected. Confirm before committing:
- Whether a grease interceptor exists or must be installed
- Whether kitchen exhaust venting can be routed to roof level, and whether the landlord permits it
- Gas and electrical capacity for commercial kitchen equipment
- Whether zoning permits food service and any patio you plan
- Whether the landlord will contribute to these as landlord’s work
For investors: what actually drives plaza value
Retail plazas are valued primarily on income, so the quality and durability of that income is the substance of the analysis.
Rent roll and tenant covenant. Review every lease. A national tenant on a long lease is a materially different risk from an independent business on a short one, even at identical rent. Weighted average lease term tells you how much income is secured and for how long.
Lease expiry profile. Several leases expiring in the same year concentrates risk. Staggered expiries are considerably safer.
Rent versus market. Below-market rents may represent upside on renewal; above-market rents may not survive renewal at all. Underwriting to current in-place rent without checking market is a common error.
Capital reserves. Roofs, parking lot resurfacing, and HVAC units all have finite lives and substantial replacement costs. A plaza with a roof near end-of-life carries a liability that should be reflected in the price.
TMI recovery. Confirm what proportion of operating costs is actually recoverable from tenants. Vacancy means the owner absorbs that unit’s share, so recovery gaps hit exactly when income is already down.
Due diligence for a plaza purchase
- All leases plus estoppel certificates confirming terms directly with each tenant
- Two to three years of operating statements and TMI reconciliations
- Environmental assessment, particularly where a dry cleaner or gas station operated historically
- Building condition assessment covering roof, structure, mechanical, and paving
- Zoning and permitted use verification, plus any outstanding work orders
- Survey, confirming parking counts and any easements or shared access arrangements
Commercial financing generally requires a larger down payment than residential and is underwritten primarily on the property’s income rather than the buyer’s personal income. Establish what you can finance early, since it shapes which properties are realistically available to you.
Ray Azar represents retail tenants, landlords, and plaza investors across Richmond Hill, Markham, Vaughan, and North York. Learn more about commercial leasing and commercial sales, or start a conversation.
General information only. Have all leases and purchase agreements reviewed by an Ontario lawyer.