The COVID-19 pandemic has brought significant changes to the retail industry, and one area that has seen a significant shift is the tenant-landlord relationship. With the growth of e-commerce and the challenges brought on by the pandemic, both tenants and landlords have had to adjust to a new reality. In this blog post, we’ll explore how these changes are impacting the retail real estate market and what tenants need to know before signing a new lease.

Complicated Deals Amid Constricted Cash Flow and Rising Interest Rates

The pandemic has resulted in constricted cash flow and rising interest rates, making deals more complicated for both landlords and tenants. Landlords are pushing for more stability in their leases, seeking to avoid the scars of rent forbearance and payment disputes. As a result, tenants hoping to sign new leases will increasingly find themselves on the receiving end of changing deal terms, with more frequent rent increases and expectations for more payments being made upfront.

Annual Rent Increases Tied to Inflation

The traditional approach to retail leases has been to sign a flat lease for a year, add a bump, and then make it flat for another five years. However, landlords are now looking to tie annual rent increases to inflation. They are asking for roughly 2.5% a year over the course of 10- to 15-year leases, rather than traditional deals that included a 5% to 10% price jump partway through. This new approach provides more stability for landlords and makes budgeting easier for tenants.

Get Good CRE Advice Before Signing a New Lease

As the tenant-landlord relationship in retail real estate continues to evolve, it’s essential for tenants to seek good commercial real estate (CRE) advice before signing a new lease. The changing deal terms mean that tenants need to be more informed about their options and aware of the potential risks involved. Seeking the advice of a knowledgeable CRE professional can help tenants make informed decisions that benefit their businesses in the long run.

Conclusion

The pandemic has brought significant changes to the retail industry, including a shift in the tenant-landlord relationship. With more frequent rent increases and changing deal terms, tenants need to be aware of the risks involved before signing a new lease. Seeking the advice of a knowledgeable CRE professional is essential to ensure that tenants are fully informed and can make decisions that benefit their businesses in the long run.