The crisis mode we’ve been in for the past 18 months seems to be subsiding when it comes to renegotiating rent for retail tenants and the approach to new leasing that is now being taken. Some landlords, along with their lenders, are choosing to hold off leasing space believing that the market will begin to improve in the next 12 months and they do not want to commit to long-term, low rent deals today that they will be dealing with for the next 10 years.
Rent relief requests continue to trickle in, but landlords are not feeling as much pressure to work with the tenants on a long-term basis as they were a year ago. In fact, I’m seeing more landlords turn down these requests, especially when the retailers are unwilling to provide the necessary information to support their request for rent relief.
While some retailers are still struggling and could still be potential bankruptcy candidates, the fear has been replaced by a more factual approach by landlords to determine if these tenants really are at risk of creating a dark box in their properties.
The value of some retail properties has shifted significantly over the past two years for a multitude of reasons, one of which is the rent reductions that have taken place. This has led to more lender involvement in rent restructuring and new leasing.
We’re also seeing a significant discount on the rents that new tenants are willing to pay for space. When combined with the large tenant improvement packages many are requesting, it makes more sense to work out short-term rent reductions with the existing tenants even though we may have concerns about the tenant’s longevity or financial strength.