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An ancillary tenant is a term used to label tenants that are not very important to the landlord.
It is usually used in the context of commercial real estate like shopping malls and multi-unit industrial buildings.
Unlike an anchor tenant who has a lot of leverage over the landlord, landlords don’t lose a lot of sleep over the prospect of losing ancillary tenants.
This is because they only rent small spaces that can be easily rented to new tenants when vacated.
They are not big name brands that people come to the mall just to patronize.
In a way, they are just using the traffic generated by other tenants and do not add a lot of value to the overall profile or experience of the shopping center. Like a satellite tenant.
Common types of ancillary tenants include:
- Provision shops
- Hair salons
The exception is when they are recognized brand names like chain stores.
In this case, even though they might take up spaces as small as 500 square feet, they are not considered as ancillary tenants.
However, as with the rule of real estate, the smaller space that is rented, the higher the rental rates per square foot.
This means that even though the rent they pay might be perceived as just a drop in the ocean for a big landlord’s revenue, they provide the best margin.