Holland & Knight's Janis Schiff

A slowdown in retail sales is causing both tenants and landlords to retool their negotiating and leasing strategies. Deals are still happening, but in many areas–particularly new suburban developments–tenants are holding out for concessions from landlords. Janis Schiff, a partner in the Washington, DC office of Holland & Knight, discussed with GlobeSt.com the many trends in retail leasing that she is seeing in her national practice representing both landlords and tenants.

GlobeSt.com: As the economy is reportedly slowing, are you seeing a slow down in the retail real estate sector?

Schiff: Since the holidays, I have seen a change. We were very busy getting deals done at the end of the year, but since the retailers have slowed down the pace on matters in process. No one has said that it’s because of low sales at the holidays. I would say it is because they are concerned about the perceived recession. Even some of the national chains are slowing down and making the deals a lot more difficult for landlords.

GlobeSt.com: Are retail tenants asking for more concessions from landlords?

Schiff: Many tenants are saying that they don’t want to open in certain shopping centers unless a higher percentage of the space has already been leased. Some are saying they won’t open in a center unless it is 60% leased. Tenants don’t want to spend their money unless they know that a particular project is going to take off.

Tenants who are agreeing to come into retail spaces are getting landlords to agree to build out the spaces for them. It’s risky for landlords, and they don’t want to do it for tenants that are iffy. Other tenants–especially restaurants–are financing their construction. That requires them to get what’s called a “landlord waiver,” in which the landlord waives their liens on furnishings, fixtures and equipment so the tenant can get financing. A little more debt is going in on the side of the tenants.

GlobeSt.com: Is the housing slump having an effect on retailers?

Schiff: The lack of home sales is affecting suburban planned unit developments with retail centers. These developments are often a large tract of land with part residential and part reserved for retail and commercial space. When there is a lack of home sales, the retail outlets don’t get the traffic they were expecting. Franchises in these neighborhood shopping centers are not seeing the number of sales they were expecting because of the lack of home sales. As a result, some of the smaller retail chains are closing units.

Suburban landlords are reassessing their plans. They’re not able to get as many of the usual tenants. Leasing agents are being asked to be more creative to find users that might be different from those that were originally on their list and they are helping find ways for tenants to finance their improvements.

GlobeSt.com: Is it all bad news for retail or are there some bright spots?

Schiff: One sector that is still doing well is mid-priced family chain restaurants. They are doing pretty well in most markets. And in some core markets with dense population with regular traffic and regular supply, I’m not seeing the slowdown. Mixed-used projects are also doing well, especially those with rental housing in them. Drug stores and grocery stores are strong. Another sector with strong retail growth is college towns, particularly in the south. It’s all not doom and gloom.