Retail Owners Strategically Negotiate Lease Terminations

Retail owners are strategically negotiation lease terminations with struggling tenants. During the pandemic, tenants that have faced challenges in the last year and don’t show signs of recovery are often happy to exit the lease. Simultaneously, landlords are able to reclaim retail units and backfill them with better fitting tenants—and potentially higher rents.

“Some retail developers are being proactive in dealing with existing space by negotiating early lease terminations with struggling tenants who do not see things turning around anytime soon,” Dan Villalpando, a partner at Cox, Castle & Nicholson, tells GlobeSt.com. “These developers are seeking to strategically take back certain spaces prior to the natural expiration of the applicable leases in order to remerchandise with better tenants and higher rents.”

This has been a popular trend with big box and mid-sized tenants that are looking to reduce their footprint in certain locations. This opens the door for better performing tenants to expand. “Some “mid-box” or “junior anchor” tenants like PetSmart and Staples, who are looking to downsize their footprints, may be willing to give space back early, allowing landlords to aggregate enough square footage to attract certain hot retailers in an effort to revitalize their shopping centers,” says Villalpando. “Some new concepts that might be positioned to absorb excess space in 2021 include health and wellness, pet services, automobile showrooms and salon suites.”

Landlords aren’t only looking at ways to repurpose retail spaces but common spaces as well. “Many developers have been able to transform common areas and sidewalks for tenant use as dining space or space for outdoor exercise and workouts,” says Villalpando. “In addition, some developers are being forced to get creative with their parking lots to provide their tenants with the ability to offer buy-online-pick-up-in-store (BOPIS) capabilities, which appears to be a growing trend.”

This strategy has ultimately helped to drive traffic and spending at retail centers. “Since statistics show that over 80% of BOPIS consumers will shop for additional items while picking up their orders, it is no surprise that retailers are interested in offering this service, which will likely become more popular when the pandemic subsides,” says Villalpando.