You can’t miss the impact of the coronavirus pandemic on the retail and real estate landscape; however, if you look past the initial shock of vacant retail locations across America, you’ll see an tremendous silver lining for tenants.
With less retailers expanding, many landlords are seemingly desperate to fill vacancies and that is leading to lease terms that are overwhelmingly in favor of the tenant—to a historic degree. This means future retail stores will be more profitable, with more contractual protections for the company. The optics of multiple, long-term vacancies, caused by the pandemic, are creating better lease terms than have been seen for the last twenty years, but this window of opportunity could close within the next ninety days, as strides are made in fighting the virus, shoppers’ comfort levels growing about going out in public, and restrictions from government shutdowns loosen.
Here’s a closer look at what we are seeing landlords offer retail tenants.
Historically Low Rents
An obvious result of vacancies is lower rents; however, when you take the optics of a heavily-vacant retail center into account, the strength of the negotiation rests firmly in the hands of a prospective tenant and their representatives. Therefore, it isn’t uncommon to negotiate to level as low as fifty percent less than what was being agreed upon before March 1.
Better Tenant Allowances and Landlord Buildouts
Landlords are willing to give more tenant allowance than they ever have to fill vacancies. This equates to tenant allowance of double or triple what we’ve seen before. Additionally, landlords are increasingly willing to take on more work and waive certain charges, like marketing, advertising, and merchants association.
Long-term Leases and Early Termination
Landlords are assuming more of the risk right now at an astonishing level. Tenants are able to secure long-term leases (upwards of ten to fifteen years) with rents far below market value. Moreover, tenants can secure “kick outs” in their leases which minimizes their risk even further by allowing them to break the lease after 3 years, if sales do not reach a set sales figure.
Far Greater Opportunity for Profitability
Ultimately, all of these concessions that landlords are willing to make come down to one indisputable fact; companies that sign leases now are going to have more-profitable retail stores for many years to come. Between more landlord buildouts, bigger tenant allowances, more waived fees, and substantially lower rents, tenants are going to experience historically-greater four wall contributions.
The retail landscape is still evolving to the “new normal” of existence within a global pandemic. It’s important to note that evolution is continuous and although the market has shifted to being overwhelmingly-favorable for tenants, this will not last long. Once professional sports can let fans into their stadiums and arenas, the strength will shift once more.
For over 30 years, The Greenberg Group led the expansion of global and iconic brands like Lacoste, Gucci, Puma, Travis Mathew, Drybar, Crocs, Eddie Bauer, Roche Bobois, and many others. Using our proprietary method of analytics and research, we place our clients in locations that maximize retail store profits. If you’re interested in learning how The Greenberg Group can help your company in its retail expansion, call us at 516-295-0406 x 203 or visit thegreenberggroup.com to learn more.