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.

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Trending: Outdoor Dining Space as the New Restaurant Must-Have

2020’s pandemic-shaped outlook posed challenges to all areas of business. From office to industrial, no one escaped this year’s disruptors unscathed.

One of the worst-hit commercial sectors has undoubtedly been the foodservice industry. The restaurant scene was utterly surrounded by opposition to business success. Market closures, changing consumer sentiments, and fears of highly contagious diseases ravaged the restaurant industry all across the country.

However, restaurants are resilient. Despite the mounting challenges, this business was able to stay above water and keep pushing ahead. It’s true that not everyone made it – but many did, and it was thanks to innovation and savvy pioneering of the new normals.

The Decline of Indoor Dining

One such COVID-minded adaptation to the restaurant model was a major decline in indoor dining.

Enclosed spaces with a constant influx of guests stood as a noticeable red flag for restaurant operators striving to keep their guests safe without disrupting business. High-traffic means high-risk, and the lack of circulation paired with close proximity – both of which are inherent to the indoor dining experience – are not being viewed in the positive light they once were.

In the past, guests flocked into indoor dining rooms without a thought. After all, rubbing elbows with other restaurant patrons was viewed as a natural aspect of being out. But, as we examine these habits in light of the recent pandemic, this behavior is reckless and even irresponsible.

For both restaurant operators and guests, indoor dining is being de-emphasized at large.

Putting Emphasis on Socially-Distant Eating

When indoor dining began falling out of favor, the restaurant scene shifted into a new set-up to replace the lost amenity for their guests. The restaurant space began heavily relying on social-distancing service, including outdoor seating and a reconsideration of space.

Inevitably, this reinvention of the most popular dining model will require renovations to CRE’s physical spaces. Re-designs, new acquisitions, and layout changes are pending for many restaurants across the country.

In terms of restaurant chains, Burger King is setting the example by spearheading their restaurants with COVID-conscious designs, including touchless service and an absence of indoor dining.

McDonald’s, KFC, California Pizza Kitchen, and TGI Fridays also have similar plans in the works – further demonstrating the momentum of this new trend.

Space and Outdoor as the Winning Combo for Eateries

If the majority of restaurants had a seamless network of open-air dining areas and touchless access, the foodservice industry may not have been impacted so heavily by the pandemic. But, since these now-pivotal safeguards were not in place, too many eateries struggled under the pressure.

As we move forward, restaurants will be thinking ahead and preparing for the worst by integrating valuable strategies into their normal procedures. A new evaluation of space and outdoor eating options will set up restaurants for success – no matter what lies ahead.

In the past, the generic image of a restaurant may have been a small cozy indoor scene… but that’s all expected to change as the restaurant business applies the lessons learned during 2020 into their baseline operations. The new restaurant is looking like it will revolve around open-air integration and strategic spacing.