As retailers’ preferences for how they occupy and pay for space change, so have the lease agreements for that space.
Holly Rome, JLL’s director of national retail leasing, said landlords have become more flexible in how rental structures are set up. Standard leases are typically a combination of monthly rent and a percentage of sales attributed to the store. Now, e-commerce companies and other non-traditional retailers are negotiating more creative types of leases as they experiment with a brick-and-mortar presence, Rome said.
New agreements, for example, may have rent determined solely by percentage of sales for the retailer’s first year, transitioning to a locked-in rate thereafter.
“It’s all about looking at how to get the tenants in there. There are a lot of different ways you can do that,” Rome said.
As department stores face tough economic headwinds and shutter locations across the country, malls are facing growing numbers of empty stores to re-tenant. With large chunks of empty space, landlords are more incentivized to craft non-traditional leasing terms that appeal to new retailers, Rome said.
“The goal is to get the retailer in the space, paying market rate, but you want the retailer to be successful,” she said. “Landlords are very invested in retailers performing well.”
Meanwhile, Michael Phillips, president of Atlanta-based private equity real estate firm Jamestown Properties, predicted fewer of the traditional 15 to 20-year leases as retailers favor five to seven-year leases with multiple five-year extension options.
“We’re seeing retailers that are certainly less interested in committing to tying up real estate for a long-term single lease,” he said. “They’re looking for shorter periods for options.”
For more on how landlords are adapting, read the full story in PERE’s Investing in Retail publication. (HYPERLINK )