How are Retail Spaces Addressing Lease Renewals Right Now?

A business sign that says Open on cafe or restaurant hang on door at entrance. Vintage color tone style.

Since the pandemic, planning for the future has become incredibly difficult. Whether it’s the one-month outlook or one-year forecast, uncertainty looms over every prediction.

2020’s widespread barriers to foresight have been causing troubles across the board. However, the impacts have been particularly intense for commercial real estate leasing.

As a result, today’s leases are more creative than ever: new clauses have been added, lease timelines have adjusted case-by-case, and a general atmosphere of openness is reshaping CRE.  

This flexibility has given rise to new leasing trends that vary sector-by-sector. Unique and specialty lease terms are arising across the entire commercial industry, but some sectors are handling renewals with greater tact than others.

Retail: Pivoting at Renewal Period

The retail sector has been particularly resilient in developing creative solutions for today’s biggest leasing challenges. Right now, retail spaces are flexing new approaches to lease renewals.

Retail’s ingenuity can be linked to the specific difficulties this sector has faced in 2020. Brick and mortar retail was in a tough spot during the pandemic. E-commerce gained the upper hand as shoppers stayed home and opted for remote services. Meanwhile, retail property owners were struggling to keep their tenants from abandoning their physical spaces.

While some brands are choosing to go remote, others are holding onto their commercial real estate. CRE spaces are being viewed as essential to retail – but that doesn’t negate the persistent uncertainty. This situation has prompted retail tenants and property owners to work together to cope with today’s biggest challenges to commercial leasing.

Here’s a look at a few of the ways that retail spaces are approaching lease renewals right now:

Short-Term Leasing

The primary response to 2020’s lease renewal challenges was opting for shorter commitments. Typically, retail leases range from three to five years in duration. However, with five years feeling like a lifetime away, property owners and tenants reverted to one-year timelines.

Short-term leasing was the immediate way that the retail sector pivoted according to the pandemic’s hazy outlook. Shorter commitments meant lessened risks, making this a key strategy for tenants.

However, property owners took a hit. In times of uncertainty, it’s safer to have a portfolio of long term leasing contracts. These single-year leases were far less stable – but in the circumstances, it was better than no lease at all.

More Time, Lower Price

In order to solve the problem of shorter leases, property owners have made another compromise.

Today, CRE owners are offering lower rent rates for longer leases. This means a tenant gets a better deal if they opt for a longevous contract. While it does reduce the asset’s annual returns, it also keeps rent pouring in – which can be a vital lifeline during a crisis.

This trade-off is proving successful for the property owners and tenants who are trying it out. It’s attracting tenants and prompting them to sign for longer durations. The longer timelines is giving property owners a stable stream of income for years to come.

What’s coming next? To find out, be sure to keep your eyes on the new trends emerging in retail leasing.


5 Considerations to Make When Approaching Your Landlord for a Lease Restructure

2020’s lease restructuring period isn’t anything like the industry’s used to. This year is filled with previously unforeseen obstacles, including pandemic disruptions, an economic downturn, and flood waves of new policies that implicate the commercial space.

If you’re struggling with these circumstances, don’t let the opportunity to restructure your lease idly pass you by. This gives tenants the chance to establish new leasing agreements that can potentially help them down the line. Reducing expenses, rewriting protocols, and other edits can be negotiated with your landlord. But, the window won’t last forever – so it’s time to start planning how you’re going to approach this process.

No matter what commercial real estate sector you’re working in, everyone might have a few questions about how to approach a lease restructure. Here’s are some helpful considerations to make:

Perform Due Diligence

Keeping up with the market is an imperative part of diving into lease restructuring. Especially right now, when CRE remains in a large cloud of uncertainty. Commercial tenants should do whatever they can to stay on top of their sector’s ebbs and flows. Explore comparable properties, talk to experienced professionals, and research your local area.

Don’t Wait Until the Last Minute

If you attempt to rush into a lease restructure, you could end up putting yourself in an even worse situation. A lease restructure is just as important as the original lease agreement. Whatever ultimately unfolds after the lease restructure will affect your bottom line of business for years to come, so it’s certainly nothing to take lightly.

Start preparing for your lease restructure in advance by researching the market and examining your tenant needs.

Consider Your Landlord’s Situation

It’s not just CRE’s tenants that are facing a tough external situation. Landlords have seen their fair share of challenges this year, too. Boost your negotiations by thinking like your landlord. Not only will this help you appeal to your property owner, but it can also create more realistic and well-rounded proposals.

Have a Plan

Never navigate a lease restructure blind.

Remember, lease restructuring doesn’t automatically work out in the tenant’s favor. Tenants who casually approach restructuring are opening the doors for potential issues, such as higher bills and less favorable agreements. Always have a general plan in place before you talk to your landlord. Know what you need, want, and can’t do. These safeguards can mitigate errors or wrong moves.

Work with a Professional

Consulting an experienced real estate agent or broker is a smart idea for any tenants who aren’t exactly sure how to navigate the details of their lease restructuring.

Tenants who decide to consult a commercial real estate professional will be backed by their knowledge, talent, and expertise in this market. Having a professional on your side also supports your negotiation skills, which is pivotal if you’re relatively new to the deal-making process.

Right now, it’s more important than ever for commercial tenants and their landlords to work together and collaborate on a restructured lease. Make sure you’re thinking about these important considerations when shaping your leasing strategy.

Contact one of our agents today to help with lease renewal negotiations
216 831 3310