Essential Services Drive Retail Leasing

It is no surprise to hear that retail leases have stalled during the pandemic. With many store closed or operating at limited capacity and uncertainty about the future of the market, retailers have paused any expansion plans. However, some new leases are still getting done. Essential retailers are continuing to move forward on new leases even through the pandemic. These retailers are helping to drive lease activity.

“In terms of new leases, I would say there are fewer new leases being completed given the current climate and uncertainty surrounding the pandemic,” Chris Rizza, a partner at Crosbie Gliner Schiffman Southard & Swanson, tells GlobeSt.com. “Many tenants looking to enter into new leases and rent space are sitting on the sidelines taking a wait-and-see approach.  New deals that are closing tend to be for tenants providing essential services—those tenants that are not seeing a significant dip in consumer demand during the pandemic.”

In fact, Rizza just worked on one such essential lease deal for a Dollar Tree Store, which has been opened through the pandemic. ‘I recently negotiated and finalized a new lease for a Dollar Tree store—a discount retailer—in Merced, California on behalf of a landlord client.  Stores such as these, as well as grocery stores, home improvement and drug and convenience outlets have generally fared well during the pandemic,” he says. “In terms of existing leasing deals, the landlords and tenants I have worked with have been relatively cooperative in agreeing upon concessions and finalizing amendments.”

To help facilitate leasing activity, retail owners have been very open and flexible in providing lease concessions and looking at new opportunities and even existing leases on a case-by-case basis. “In general, the landlords I represent have been reasonable and measured in modifying existing leases and granting concessions to certain tenants,” says Rizza. “There isn’t a “one-size-fits-all” approach. A landlord’s willingness to offer concessions depends on a number of factors including, but not limited to, whether or not the tenant genuinely needs assistance, if the tenant’s business actually decreased as a result of the pandemic, the financial strength of the tenant and the past performance/behavior of the tenant.”

For existing tenants, past relationships and performance will also play a role. “Obviously if the landlord and tenant had a rocky relationship to begin with prior to the pandemic, it’s going to be more difficult to agree upon terms in an amendment for rent relief,” says Rizza. “However, most landlords understand the economic strain tenants are experiencing from this pandemic and are generally willing to work with tenants that are reasonable and not too demanding.  Again, it takes reasonable parties coming to the table and putting their heads together to come up with a structured deal that makes sense for both sides, rather than one-side trying to threaten or force their way to a lopsided outcome.”