Don’t Miss These 5 Emerging Trends in Retail Leasing


Urban Land Institute recently identified trends in retail due to the following market conditions: lagging construction, greater demand than supply, rising rents, as well as food and health driving growth, department stores declining, and big-box retail diversifying.  As retailers continue to feel the impact of these market changes, commercial real estate owners are being called upon to adjust their approach to leasing and use of CRE space. We see five trends emerging in retail leasing.

  1. Shorter leases. The tech industry has led the way in negotiating shorter term leases over the last few years. NREI Online reports on the commonplace in San Francisco of tenants desiring shorter, more flexible lease terms to coincide with their unique business models. In similar fashion, as disruptions in retail compel retailers to rethink their business models, CRE owners will respond to the market demand with shorter, more flexible lease terms.
  2. Green matters. Another trend in retail leasing can be attributed to a green swell of sustainable commercial buildings. A carryover from the residential sector, solar energy can reduce energy costs both for the owner and for tenants, depending on how costs are allocated within a lease. Clean Energy Experts explains that reducing operating expenses with solar power can keep lease rates of the tenants at a more favorable rate, keep the building at or close to 100% occupancy and maintain strong profit margins due to reduced expenses and strong revenues as a result of high occupancy.  Retailers also gain marketing advantages when located within solar powered CRE. Boosting their reputation for quality and drawing media attention for going green can work to retailers’ advantage as they occupy green and smart CRE properties.  Colliers suggests also an emerging concern for retailers who want to elevate their brand image with sustainable practices. Additionally, studies indicate that natural light and air have a positive influence on shoppers’ spending habits.
  3. Co-tenancy and competition. Spotting a McDonalds across the intersection from a Burger King has been commonplace in the U.S. for decades. Such strategic locations based on competition are experiencing another surge in retail now more than ever. As Colliers explains, this time around retailers in lease negotiations will seek locations next to perceived complementary businesses. In addition, Colliers indicates co-tenancy clauses that were once specific to anchor tenants are increasingly likely to specify a small store in another category.
  4. Collaborative economy. Retail leasing will continue to be affected by the burgeoning popularity of companies like Airbnb or WeWork, which can share space, marketing, and other business initiatives. The lease and use of spaces is changing as a result of startups based on this type of sharing or collaborative economy. Deloitte forecasts the need for owners to rethink their approach toward space design, lease administration, and lease duration.
  5. Amazon effect. Online retailing along with innovations in delivery of products such as same-day, in-store pickup, and e-lockers, continues to blaze new paths in retail. The impact on leasing includes a downsizing of large retail spaces and combined uses between showrooms and fulfillment centers. Traditional lease terms will need to adjust to the needs of retailers as a result of what many call the Amazon effect.