While the future remains uncertain especially due to a number of factors including rising interest rates, supply chain disruption, inflation, and war in Ukraine, the retail sector has continued to see rents gradually rising toward pre-pandemic levels. From a national perspective, when the Covid associated lockdowns began in 2020, overall rents decreased significantly, however, in the first half of 2021 they rose by .1% and then 3% in the second half of the year from the pandemic low. This year, we have seen a continued gradual increase in rents in the retail sector. The good news for retailers is there remains a window of opportunity to take a hard look at their real estate portfolios and create a strategy to reduce expenses, elevate exposure and visibility, and optimize the value of their real estate for the short and long-term. 

I think it is important to note that not all landlords agree that tenants have leverage regarding the negotiation of lease terms. In our interactions with retail owners, they contend that inflation is an argument to increase rents, however, in the triple net world, we aren't convinced that inflation in and of itself is a significant justification for a rent hike. It is imperative to take a micro-level perspective on each local market, understand supply and demand and determine how the triple net pricing is passed through. That is, very often the tenant is fully responsible for the increases associated with NNNs and CAM expenses. The fact is, a majority of markets across the nation have experienced some degree of decline from the pandemic and are in various stages of recovery. That fallout is amplified by the effects of ecommerce that were in play prior to Covid, but which Covid accelerated, leaving more available space as a consequence of retailer bankruptcies and store closures. Retailers are in a sweet spot right now to reevaluate their leases, but not for long. To illustrate, malls are being redeveloped into mixed-use projects, retail is being converted to industrial and multifamily, and big boxes are being broken down for medical and other non-traditional retail uses. Inventory will inevitably get tighter over the next few years. 

The good news is, with a robust lease restructuring or renewal program, a vast majority of retailers can take advantage of lower rents as well as saturate new markets and expand in others. Following a few key points on each strategy: