Co-Tenancy: How Neighboring Tenants Influence Your Performance
Why Co-Tenancy Should Be a Key Part of Your Site Selection Strategy
When it comes to choosing a retail or restaurant location, many brands focus on the basics: visibility, traffic counts, lease rates, and square footage. But one factor that often gets overlooked—and can significantly influence performance—is co-tenancy.
In simple terms, co-tenancy refers to the other tenants in your shopping center or immediate trade area. These neighbors can directly impact your success by shaping customer behavior, driving foot traffic, and even affecting your lease terms.
Let’s explore why co-tenancy matters and how to make smarter location decisions with it in mind.
What Is Retail Co-Tenancy?
Retail co-tenancy is the mix of tenants in a shared retail environment—whether in a strip center, power center, or mixed-use development. These neighboring businesses create a collective shopping experience, which can either help or hinder your brand.
How Neighboring Tenants Influence Performance
1. Customer Traffic and Synergy
The right co-tenants attract your ideal customer and create reasons for them to linger, cross-shop, and return.
✅ Example: A fast-casual salad brand positioned near a yoga studio, smoothie bar, and athleisure retailer benefits from overlapping lifestyle-driven traffic.
2. Category Clustering (or Conflict)
Clustering complementary uses can create a destination. But clustering similar brands too closely may create direct competition and dilute market share.
✅ Do: Group with synergistic categories (e.g., fitness + healthy food + wellness retail)
🚫 Avoid: Overlapping with too many direct competitors unless there’s high demand density.
3. Anchor Tenant Gravity
Big-box anchors like Target, Walmart, or grocery chains act as traffic magnets. Their foot traffic spills over to neighboring tenants, especially if your use fits the customer journey.
✅ Ideal Pairing: Quick-service restaurants near grocery anchors catch shoppers before or after their main visit.
4. Sales Performance and Brand Perception
Your neighbors affect how your brand is perceived. Being near high-performing or well-aligned brands boosts credibility. Being surrounded by struggling or low-traffic tenants can drag you down.
✅ Brand Tip: Look for centers with national or regional brands that share your customer quality and positioning.
5. Co-Tenancy Clauses in Leases
Many leases include co-tenancy clauses that allow tenants to modify rent or terminate the lease if a key co-tenant (often an anchor) closes. While these clauses protect you, they also highlight the financial interdependence of tenants.
✅ Legal Tip: Understand your lease rights and obligations in relation to neighboring tenants.
Red Flags to Watch Out For
- High vacancy in the center
- Irrelevant or misaligned tenants (e.g., discount clothing next to high-end salon)
- Rapid turnover or short-term leases
- Lack of anchor draw or poor visibility from co-tenants
These can all reduce the volume or quality of foot traffic—affecting both revenue and your brand perception.
Final Thoughts: Choose Your Neighbors Like You Choose Your Real Estate
In retail and restaurant development, real estate is only part of the equation. Co-tenancy plays a critical role in determining whether a location underperforms, meets expectations, or exceeds them.
Smart co-tenancy isn’t just about who’s nearby—it’s about shared audience, customer intent, and strategic synergy. As you evaluate new sites, pay as much attention to the company you’ll keep as you do to square footage and signage.