Shifting Dynamics inโ retail Real Estate Create Opportunities โฃfor Small Businesses, But Challenges Remain
The retail landscape is undergoing notable changes, creating a complex environment for both landlords and potential โขtenants. While large โshopping centers once prioritized securing “credit tenants” – stable chains willing to โขcommit to long-term leases -โ a shift is occurring, possibly opening doors for smallerโ businesses, though not without hurdles.
According to retail expert โJoshua Norman, some shoppingโ centre owners are strategically allowing โvacancies to accumulate, notably if their long-term plan involves selling theโ property. This approach prioritizesโ a clean slate for potential buyers over immediate โrentalโข income. the pursuit of credit tenants, typically those offering six months’ rent upfront on 5-7 year leases, is becoming more difficult, creating a potential opening for smaller businesses to negotiate more favorable terms.
Though, landlords face considerable risk when considering smaller tenants. A key concern is โlease duration, asโ Norman pointsโข out, questioning whether โฃa “Mom and Pop” shop will commitโ to a lengthy agreement.
The viability โof these opportunities is heavily influenced by location.Andrew Spatz, a commercial โreal estate attorney in New York City, notes that the market aroundโ New York City is trending against betterโ deals for small businesses. Increased demand for warehousing and distribution space has actually increased theโ value of โvacant retail properties.
Conversely,โ in areas where big-box stores have closed โand data centers โฃhaven’t absorbed the available space, opportunities areโ emerging. Spatz emphasizes that โฃthese opportunities are contingent on landlords offering โmanageable lease terms, specifically avoiding โข”triple net” โleases, which require โtenants to cover property taxes, insurance, and maintainance in addition to rent.
In Des Moines, Iowa, real estate broker Jacob Naig reports a more favorable climate for small businesses. He cites a recent example of a family-owned restaurant securing a โlocation previously occupied by โฃa chain pizzeria at a rent 30%โ below theโ original asking price, with the landlord even โproviding funds for kitchen renovations – a deal unlikely just five years ago.
Despite these positive โฃdevelopments, the inherent risk of small business failure remains a significant concern for landlords. โGlenn โฃBrill, a managing director โคat FTI Consulting, points out that over 50% of small businessesโข fail withinโ six years. This risk oftenโข leads landlords to prefer waiting for a strong tenant willing to pay full market rates rather than accepting a potentially short-lived small business at aโ reducedโค rate.
Brill suggests that smaller strip centers, rather โthan large “big box” locations, offer โmore realistic โopportunities for small businesses. Though,โข even in these settings, success depends on strong local economic conditions. Reduced rental rates โขalone may not beโค enough to incentivize a small retail business to open if the surrounding economy is struggling.
