Co-Tenancy Strategy: The Neighbors Behind Your Revenue

The Neighbor You Didn't Evaluate

You found a strip center with the right demographics, solid traffic counts, and a rent that works. You signed. Six months later, the grocery anchor on the other end of the center announced it was closing. Within 90 days, weekday lunch traffic at your store dropped 30 percent. (Illustrative scenario, based on patterns I've seen across several operators.)

The site didn't change. The trade area didn't change. Your co-tenant situation changed, and nobody evaluated it before you signed. That's the gap a real co-tenancy strategy fills.

Co-tenancy strategy is the part of site selection that asks: who else is in this center, how much of your traffic do they generate, and what happens to your revenue if they leave? Most real estate teams evaluate the site itself (demographics, visibility, traffic counts) and treat co-tenants as background noise, which inverts the actual weight of the variables. For inline retail locations in multi-tenant centers, your neighbors often matter more than your address.

I've watched brands pick strong sites that failed because the anchor next door closed, and mediocre sites that thrived because the right grocery or fitness tenant drove consistent daily traffic. The co-tenant mix is a variable that changes over the life of the lease, and most teams don't evaluate it well.

What Co-Tenancy Actually Means for Site Selection

Co-tenancy in site selection is the relationship between your store and the other tenants in your center, strip mall, or retail corridor. It works through two mechanisms.

Spillover traffic. A customer drives to the grocery store for weekly shopping and walks past your storefront on the way back to the car. They weren't planning to visit you. The anchor created the trip, and your proximity captured the visit. Industry research has measured this spillover effect across thousands of centers. ICSC's open-air center analysis has shown that strong neighboring anchors can lift inline retailers' digital sales by roughly 7 percent, while an anchor closure suppresses those sales by over 10 percent. The physical presence of neighbors affects sales channels they don't even touch directly.

Shared customer profile. A fitness studio and a smoothie bar serve overlapping demographics. The fitness studio didn't "send" customers to the smoothie bar, but the same person who works out at 6 a.m. wants a protein shake at 6:45. When co-tenants share a customer profile without competing directly, both benefit from being in the same location.

These two mechanisms create different evaluation criteria. Spillover measures traffic volume (how many people does this anchor bring?). Shared profile measures fit (are these the right customers for my concept?).

Three Types of Co-Tenant Relationships

Co-tenant relationships fall into three categories: complementary, competitive, and irrelevant. Not every neighbor helps, and the category determines how you should evaluate and act on each one.

Complementary

These neighbors drive your traffic. A grocery store anchoring a center where you sell pet supplies. A gym in the same strip as a health food store.

Complementary co-tenants work because they create multi-stop trips. The customer came for one errand and completes two. Most teams evaluate this relationship by instinct. It's worth paying a premium for when the data supports it.

The strongest complementary co-tenants share your customer demographics but serve a different need. The question to ask: "Would my target customer have a reason to visit this neighbor on the same trip?"

Competitive

These neighbors split your traffic. Two sandwich shops in the same strip center. A dollar store in a center with a discount grocer.

Some competition nearby is healthy. It signals demand. Direct competitors in the same center split the available spend rather than growing it. Whether competition signals demand or splits revenue depends on trade area capacity.

We covered this dynamic in detail in our market saturation analysis. The same supply-demand framework applies at the center level, not just the trade area level.

Irrelevant

These neighbors don't affect your traffic in either direction. A tax preparation office next to a QSR restaurant. A mattress store in the same center as a pet groomer.

Irrelevant co-tenants aren't harmful on their own. A center full of irrelevant co-tenants is a warning sign. It means nobody designed the tenant mix. The landlord filled vacancies with whoever signed first, and the result is a center with no anchoring logic. Traffic in these centers tends to be lower than comparable centers with intentional tenant mixes.

How to Measure Spillover Before You Sign

Measure co-tenant spillover before signing by combining three data sources: mobile location panel data, historical center traffic, and comparable co-tenancy profiles. The question isn't whether to care about co-tenants — it's how to quantify their impact before the lease signs.

Mobile location panel data. Placer.ai, SafeGraph, and similar cell-phone panel providers report cross-visitation between retailers. You can pull a report showing what percentage of visitors to a proposed center also visit the nearby grocer, gym, or big-box within a 24-hour window. If 60 percent of center visitors also hit the anchor in the same trip, you have quantified spillover. The methodology and accuracy of each panel differ, which we break down in our foot traffic data provider comparison.

Historical center traffic. Ask the landlord for the center's traffic trend over the past 24 months, broken down by anchor presence. A center that was at 180,000 monthly visits with the anchor and 140,000 without tells you the anchor contributes about 40,000 trips, or 22 percent of center traffic. If the landlord won't share, pull it yourself from panel data.

Comparable co-tenancy profiles. Look at similar brands that operate in similar center types across the country. If a franchisee of your brand is in a grocery-anchored strip in Phoenix and a pad site with no adjacent anchor in Dallas, compare their same-store sales. The gap is a rough proxy for the anchor's contribution.

These measurements turn co-tenancy from a qualitative hunch into a dollar figure. A site with 40 percent spillover dependence is priced differently than one with 10 percent dependence, and the lease terms you push for should reflect that.

Five Questions to Evaluate Co-Tenant Impact

Five questions integrate co-tenancy into your site scoring framework: anchor stability, spillover percentage, tenant-mix fit, occupancy trajectory, and daypart alignment. They separate a site evaluation that accounts for co-tenancy from one that doesn't.

1. Who is the traffic anchor, and how stable are they?

Every multi-tenant center has one or two tenants that generate most of the trips. Usually a grocer, a big-box retailer, or a fitness chain. Identify who drives the traffic. Then evaluate their stability.

Are they on a long-term lease? Have they closed locations in other markets recently? Are they in a category that's expanding or contracting? Grocery-anchored centers have been the strongest performers in 2025-2026 because grocery generates consistent, repeat traffic that doesn't fluctuate with discretionary spending. A center anchored by a department store in 2018 carries different risk than one anchored by a grocer in 2026.

2. What percentage of your expected traffic comes from spillover?

If you remove the anchor from the center, how much of your traffic disappears? For an inline tenant in a grocery-anchored strip, the answer might be 40 to 60 percent. For a pad site with its own access and visibility, closer to 10 percent. (Ranges reflect patterns I've seen across operator case data; your mileage will vary by concept and center.)

This percentage determines your co-tenancy risk. High spillover dependence means your revenue is tied to a tenant you don't control. That needs to be reflected in your lease structure (more on co-tenancy clauses below) and your site score.

3. Does the tenant mix match your customer profile?

Walk the center and list every tenant. For each one, answer: does this tenant serve the same customer I'm trying to reach? A center with a Whole Foods, a yoga studio, and a boutique clothing store sends a clear demographic signal. A center with a payday lender, a vape shop, and a discount furniture outlet sends a different one.

The tenant mix is a proxy for the customer base. If the existing tenants serve your target demographic, you benefit from their marketing and their traffic. If they don't, you're paying for a location that attracts the wrong audience.

4. What's the center's occupancy trajectory?

A center at 95 percent occupancy is a different proposition than one at 75 percent and falling. The direction matters more than the number. A center that was 90 percent last year and is 85 percent today has a different risk profile than one that was 70 percent and climbed to 85 percent.

Check which tenants left recently and why. If the departures are in your category, it's a demand signal. If they span categories, it's a center problem (management, location, or market shift).

5. How does the co-tenant situation change by daypart?

A lunch-driven QSR benefits from co-tenants that generate daytime traffic: offices, gyms with morning classes, medical clinics. An evening-focused restaurant benefits from entertainment tenants, grocery stores (people shop after work), or gyms with evening peak hours.

The same center serves different businesses differently depending on when their customers arrive. A fitness chain that peaks at 6 a.m. and 6 p.m. generates spillover during those windows but not at 2 p.m. Evaluating co-tenancy without considering daypart alignment misses half the picture. We walked through daypart-specific evaluation in our QSR site scoring guide.

Co-Tenancy Clauses: What Landlords Will Actually Give You

A co-tenancy clause is a lease provision that adjusts your rent or gives you an exit right if the center's tenant mix changes in ways that hurt your business. A 2025 analysis from Mohr Partners documents how these clauses have become more contentious as anchor departures accelerated.

Two types matter for site selection teams.

Opening co-tenancy. This clause says you don't have to open (or pay full rent) until specified anchor tenants are open and operating. It protects you from signing a lease based on a promised tenant mix that never materializes.

Operating co-tenancy. This clause adjusts your rent, typically to a percentage-of-sales structure, if the center's occupancy drops below a threshold or a named anchor closes. If the grocery store leaves and nobody replaces it within a cure period, your rent drops. Some clauses give you the right to terminate.

Two adjacent provisions often get conflated with co-tenancy but serve different functions. Go-dark provisions require an anchor to remain open and operating, not just pay rent, so a tenant can't quietly shutter the store and starve the center of traffic. Kick-out clauses give you the right to exit if your own sales fall below a threshold. Co-tenancy is the one that ties your fate to your neighbors' presence.

Here's where the reality diverges from the textbook. Landlords push back on operating co-tenancy clauses, especially for small-box tenants under 5,000 square feet. When you do get a clause, three things get negotiated:

• The named anchor list. You'll ask for four names (the grocer, the big-box, two complementary retailers). You'll usually get one or two, almost always the primary anchor only.
• The cure period. Textbooks say 12 to 18 months. In practice, you'll see 9 to 12 months in most small-shop leases. Push for longer only if you have leverage.
• The rent relief formula. Landlords prefer percentage-of-sales with a floor. Tenants want straight rent abatement. The compromise is usually percentage-of-sales with a minimum set at 50 to 60 percent of base.

What do you trade for a stronger clause? The common levers are a longer initial term (seven years instead of five), a lower tenant improvement ask, a personal guarantee, or a higher base rent in exchange for stronger downside protection. Knowing what you're willing to trade before you ask is what separates a clean negotiation from a reactive one.

Site selection teams should evaluate co-tenancy clauses as part of the deal analysis, not as an afterthought during lease negotiation. If your site score depends on traffic from a specific anchor, and your lease doesn't protect you if that anchor leaves, you've accepted a risk you haven't priced.

The Anchor Departure Scenario

Here's what happens when site selection ignores co-tenancy risk. (The numbers below reflect composite operator data, not a single named case.)

A brand opens in a strip center anchored by a regional grocery chain. The site scores well: strong demographics, good visibility from a major road, rent within budget. The grocery store drives around 8,000 visits per week to the center.

Eighteen months later, the grocery chain announces it's closing that location. They're consolidating to a newer store two miles away. Within six months, center traffic drops roughly 45 percent. Three inline tenants activate co-tenancy clauses and reduce their rent to percentage-of-sales. Two others terminate their leases.

The brand that opened without a co-tenancy clause is now paying full rent in a center with declining traffic and rising vacancy. Their trade area didn't change. Operations didn't change. Only the co-tenants did.

This pattern accelerated in 2024 and 2025. Several national retailers, as tracked by industry publications, closed hundreds of locations across department store, home goods, and cinema categories. Each closure created a ripple effect through the remaining tenants. Brands that had evaluated co-tenancy risk before signing had contractual protection. Brands that hadn't were stuck.

Building a Co-Tenancy Strategy Into Site Scoring

Co-tenancy interacts with at least three of the five lenses of site scoring:

Foot traffic. The most direct connection. A center's traffic count is partly a function of its anchor tenants. Removing the anchor doesn't reduce traffic to zero, but it removes the trips that anchor generated. Scoring foot traffic without accounting for the source of that traffic overstates the site's standalone performance.

Competition. Your co-tenants affect your competitive position. A complementary neighbor strengthens your position. A direct competitor weakens it. And the competitive analysis changes if the anchor leaves and the center's traffic drops, because a weaker center may attract fewer competing businesses but also fewer customers.

Visibility. Co-tenancy affects perceived visibility. A busy center with strong anchors creates a "retail destination" effect where customers expect to find stores and services. An empty center with high road visibility but low foot traffic is visible but not visited.

At GrowthFactor, our site analysis reports surface competitor and complement data with distances and visit counts. Real estate teams get a clear picture of who else is in the trade area and how they affect the opportunity.

When Co-Tenancy Should Change Your Decision

Co-tenancy analysis should override the site score in three scenarios: a strong site with a weak anchor, an average site with a strong tenant mix, and a good site with the wrong neighbors.

Scenario 1: Strong site, weak anchor. Demographics are right, traffic is good, rent works. The anchor is a department store chain that has closed 40 locations in the past two years and hasn't remodeled this one. The traffic you see today may not exist in 18 months. Score the site as if the anchor were already gone. If it still works, proceed. If it only works with the anchor's traffic, negotiate a strong co-tenancy clause or walk.

Scenario 2: Average site, strong tenant mix. The demographics are acceptable but not exceptional. The traffic counts are mid-range. The center has a popular grocer, a fitness chain, and two complementary retailers that together create a daily-trip destination. The co-tenants make this site better than its standalone metrics suggest. This is the site most scoring systems undervalue.

Scenario 3: Good site, wrong neighbors. The location itself is strong, but the existing tenants serve a completely different customer profile. You'd be marketing to an audience that doesn't naturally visit this center. This is the most common co-tenancy mistake. Traditional scoring systems evaluate the trade area demographics without checking whether the center's tenant mix actually attracts that demographic.

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