The commercial real estate landscape has shifted dramatically over the past few years, with a softening retail environment and several high-profile bankruptcies greatly affecting the retail real estate market. A wave of high-profile restructurings involving national retailers such as Rite Aid, Party City, Joann Fabrics, Bed Bath & Beyond, and many others have placed thousands of retail locations back into the market through lease rejections, assignments, and store sales. These market events have expanded available inventory throughout the country and reengaged landlord focus on tenant mix, rent expectations, and other lease framework with goals of securing stable and performing retail tenants. This environment has created significant opportunities for tenants to reevaluate and, in some cases, renegotiate their existing leases to more favorable terms.
Retail leasing activity declined in 2025 compared to prior years, resulting in a continued increase in vacancies and the slowing of rent increases. In addition, closures of anchor tenants have triggered co-tenancy clauses that permit smaller tenants to pay reduced rent while shopping centers stabilize. Benefitting from these dynamics, retailers like Dollar Tree and Five Below have been incredibly active in securing new locations. Similar opportunities are available for retailers of all sizes, where they can negotiate better deals for existing spaces, and also secure new prime spaces in desired markets.
Retail tenants should carefully analyze existing lease terms such as rent and escalations, term, and tenant options. Once retail tenants have a strong baseline understanding of existing terms, below are some key items they should consider creating more favorable rights:
- Base Rent vs. Percentage Rent: Percentage rent helps maintain rent levels tied to success of the retail business. It also bonds the landlord to its tenant’s success, resulting in better communication and mutual desire for tenant success. It also helps shift the age-old landlord mentality of rent payments above all else.
- Rent Abatements: Partially reduced or free rent has become a common way for landlords to incentivize tenants to remain in the space. Landlords may even be more willing to offer greater abatements when spread out over the term, for example, 1 free month in year 1, 1 free month in year 2, etc.
- Caps on Increases of Common Charges: In addition to base rent, retail tenants are typically responsible for a portion of common charges incurred by the landlord throughout the year. As these costs increase year to year, requiring that the increases be capped forces landlords to be more mindful of their spending, and allows tenants to better manage their lease expenses.
- Term: Common expectations for retail leases have for years dictated initial base terms of 10 years or longer, causing tenants to take on significant future liability before succeeding in the market. A more tenant-favorable approach is to negotiate for a shorter initial term, say 3 to 5 years, with more tenant options to extend the term for multiple future terms. This puts control of the future strongly in the hands of tenants. While landlords may insist on reevaluating rent for market amounts when options are exercised, this could be a reasonable price for maintaining control of term length.
- Tenant Improvement Allowances: Asking landlords to contribute towards improvement of the premises allows tenants to upgrade their location while allowing landlords to invest back into their property, resulting in a potential win-win if structured correctly.
The above is not an exhaustive list of items tenants may negotiate to improve their lease arrangements. Tenants may also focus on things such as co-tenancy rights (meaning, reduced rent if anchor or certain other tenants vacate), assignment and subletting rights where landlord approval is reasonable or eliminated, exclusive use rights or rights to modify permitted use, and many others.
In addition, the market has seen a growing trend where property owners seek to redevelop traditional shopping centers to mixed-use properties for residential, retail, office, entertainment, and other uses. Embracing these landlord goals, especially where a tenant may have consent rights, may offer leverage opportunities for better lease terms. The goal from the perspective of the tenant should be to identify potential lease modifications to secure advantages that will help support business growth and success.
Proactive and continued evaluation of existing lease terms, local market conditions, and the macro retail real estate market offers opportunities for retail tenants to take advantage of a softened retail real estate market.
Our attorneys have worked with many local, regional, and national retail tenants to evaluate and analyze their lease portfolios, identify opportunities within the existing lease framework, and engage landlords to secure more favorable terms. We work directly with tenants or their real estate advisors and brokers to create a seamless process to achieve desired leasing goals.
For further guidance, contact Arthur Yermash at ayermash@cmmllp.com or 631-738-9100 x304.
