By Jennifer Martin, CCIM
Many retail tenants who expanded in the heyday of 2004-2007 are now facing their first renewal option if they signed a ten-year lease, or facing a second renewal term, and contemplating the market. Should we renew? Is our lease rate at current market rates? Is there a better location? Should we expand or contract our business?
As retailers face options in the marketplace, they need to consider a number of things including not only the actual cost to relocate their business – moving costs, new tenant improvements, rebranding, advertising, marketing, but they also need to consider the intangible costs of relocation – what customers will I lose or gain if I am too far away from my current location? Will I lose business if I am not next to “insert retailer” anymore? Is my merchandising or inventory delivery system negatively impacted? Will I have to close during my move? These questions and analyses need to be undertaken almost a year in advance of the expiration on the lease to give adequate time to not only investigate relocation options, but to discuss the situation with your current landlord.
Landlords also need to be proactive with tenants to ensure their occupancy stays as high as possible. Don’t ignore lease expirations. Talk with tenants to see how they are performing well in advance of lease expiration to ensure you aren’t notified that your tenant isn’t renewing when the moving truck shows up. Make sure that if a tenant tries to negotiate a rent modification or tenant-improvement in exchange for the lease renewal that you are weighing the actual cash investment versus the return over the renewal term as well as the intangible benefit the tenant brings to your property – does the business fit in with my other tenants? Do they bring shoppers to my property? What is my cost if the tenant leaves and I not only have lost income, but tenant improvements and commission to pay for a new tenant? What is my long-term goal for this property and how can I assure it is being achieved?
It is clear to see that regardless of whether you are a landlord or tenant, there are a number of things to weigh when leases come up for renewal. Perspectives can be VERY different depending on which side of the table you sit on and what your long-term goals are. Be sure you are seeking out knowledgeable, trusted professionals whether that is your CPA, attorney, leasing professional, property manager, or operational consultant to make sure you are creating a plan that meets your goals and is hopefully a win-win for everyone involved.