The Most Valuable Space in Your Property Might Be the One Making the Least Money

For decades, commercial real estate has operated around a fascinating contradiction. Some of the most valuable tenants in a shopping center paid the least amount of rent.

Department stores often occupied enormous spaces at rental rates well below those paid by smaller retailers. Some even owned their buildings and land. Developers accepted these arrangements because the department stores attracted shoppers, drew other retailers, and helped support higher rents throughout the rest of the property.

The anchor's greatest contribution wasn't necessarily the rent it paid. It was the value it created elsewhere.

What makes this especially interesting is how far beyond traditional retail the same principle can be applied.

A Different Kind of Anchor Tenant

By the mid-2010s, Liberty Station had already undergone a compelling transformation from San Diego's former Naval Training Center into a sprawling 360-acre mixed-use district. Yet despite the success taking shape across much of the project, the North End continued to struggle with vacancies and a lack of activity.

Among its challenges was a large, vacant former Navy commissary. Rather than simply dividing the building into smaller retail spaces and leasing them individually, the development team saw an opportunity to do something far more ambitious: introduce a new kind of anchor that could transform the appeal of the North End and generate demand throughout the surrounding district.

Working with restaurateur David Spatafore and Blue Bridge Hospitality, the team envisioned a public market inspired by celebrated destinations like Seattle's Pike Place Market and Philadelphia's Reading Terminal Market. The concept would bring dozens of independent food purveyors and artisan businesses together under one roof, creating a collective experience that no individual operator could offer alone.

In March 2016, Liberty Public Market opened as San Diego's first food hall, transforming approximately 25,000 square feet of historic space into a lively mixed-use gathering place. The response was immediate, with an estimated 12,000 visitors during its opening weekend, alone.

The market became a turning point for Liberty Station's North End. What had once been a vacant eyesore became a defining attraction, drawing visitors from across San Diego to explore its restaurants, shops, and cultural offerings. In the process, Liberty Public Market helped transform an overlooked part of Liberty Station into a destination in its own right.

What If the Next Anchor Isn't a Tenant at All?

Consider a multifamily community where one of the most valuable investments isn't another physical amenity, but a thoughtfully designed program that brings residents together around shared interests, activities, and experiences. It might occupy very little space and generate almost no direct revenue. Yet imagine its potential influence if residents begin forming meaningful friendships, developing routines, and building a genuine sense of community. Suddenly, the property's appeal extends beyond the apartments and amenities themselves to include relationships and experiences that aren't easily replicated elsewhere.

For ownership, that could have meaningful implications for leasing demand, referrals, and resident retention. The program's contribution wouldn't necessarily appear as a revenue line item, but its influence could be felt across the property's operating performance.

And the possibilities extend well beyond multifamily. An office development could create a professional ecosystem where neighboring businesses gain access to customers, collaborators, and specialized resources. A mixed-use district might support a cultural institution that attracts visitors and strengthens demand for surrounding businesses.

An amenity adds to what a property offers. An anchor can fundamentally change why people choose to be there.

The Economics of Making Everything Else More Valuable

Imagine a cultural organization seeking space at $20 per square foot when a conventional tenant could pay $40.

A typical analysis compares the two leases. But what if the cultural organization attracts customers who support neighboring retailers or helps sustain higher rents elsewhere?

The more useful comparison is how the entire property performs with the organization versus without it.

At Mosaic, we think of this as Anchor Contribution. It considers five factors:

1. Direct contribution: The anchor's own net income or expense.

2. Demand creation: Additional customers, residents, or tenants attracted.

3. Property-wide impact: Incremental rents, occupancy, or other economic benefits.

4. Retention: Stronger renewals, loyalty, or resilience.

5. Costs and risks: Subsidies, concessions, opportunity costs, and dependency.

Consider a hypothetical example.

An owner spends $100,000 annually supporting a distinctive operator. The operator generates $50,000 in direct annual NOI before that support, while its presence produces another $160,000 in incremental NOI elsewhere in the property.

After the subsidy, the operator's total net contribution is $110,000 annually. At a hypothetical 6% capitalization rate, that represents approximately $1.83 million in capitalized value, before considering additional capital requirements or valuation adjustments.

The right question isn't whether the anchor is profitable. It's whether the property is more profitable because the anchor exists.

The Wrong Anchor Can Be Worse Than No Anchor

Of course, attracting people doesn't automatically translate into creating value.

A high-traffic destination might draw thousands of visitors who rarely spend money at neighboring businesses. A heavily subsidized cultural venue could generate activity without delivering enough financial benefit to justify its cost. And when too much of a property's appeal depends on a single attraction, its decline can have consequences far beyond its own walls, as shopping centers learned when traditional department store anchors began disappearing.

The challenge is understanding not just how many people an anchor attracts, but who they are, how they interact with surrounding uses, and whether that activity translates into stronger property performance. Just as importantly, ownership must consider whether those benefits justify the investment and what happens if the anchor loses its appeal.

That may also require rethinking the traditional leasing model. Partnerships, shared funding, management agreements, or performance-based arrangements can sometimes better align the costs of supporting an anchor with the value it creates for the broader property.

Rethinking the Anchor Strategy

For decades, anchor strategy largely focused on recruiting tenants with an established customer base. But the strongest opportunity for a property may not be found among businesses already competing for space.

It may begin with identifying demand that the market has yet to serve.

For owners and developers, that changes the assignment. Instead of asking only which tenants can attract the most people, the challenge becomes identifying what the property could offer that would give people a new reason to come.

The next great anchor may be something the market hasn't seen before.