With a diverse portfolio of leasing and managing assignments, our Coreland teams are faced with a variety of common issues specific to Southern California retail daily. Quarterly we present the statistics through our Quarterly Retail Roundup, and consult our ‘boots-on-the-ground’ for their view of the marketplace. This quarter we asked Regional Real Estate Manager Sharon Shifflett and Senior Associate Retail Broker Ben Terry, “What’s the buzz on retail?”
Sharon Shifflett, Regional Real Estate Manager
It is definitely a landlord’s market and, as a result, we have recently seen an increase in the number of tenants eager to start the renewal process earlier than usual. National and local tenants alike, especially those with a renewal option clause, have been asking to come to the table more than a year in advance. Given the strength of the market, retailers feel uneasy that landlords have options to replace or relocate tenants.
To be best prepared, landlords should rely on management teams to understand a tenant’s health and stability. In certain instances, renewal negotiations are also an ideal opportunity to eliminate or renegotiate provisions in the lease that might be restricting overall leasing efforts or operations of the property.
Ben Terry, Senior Associate, Retail Brokerage
We are seeing a lot of tenants eager to expand, but a large portion of them will only do so at the landlord’s expense. Tenants are willing to pay a premium rent, but it comes along with high tenant improvement allowance packages. Reactions from landlords are varied as it all depends on the property’s objectives. Is the owner’s intent to hold, or add value and flip?
For owner’s looking for a short-term hold on value-add properties, achieving higher rents with credit tenants is the only end goal. Amortizing tenant improvement allowances while increasing long-term value is the ideal scenario. However, if the property is a long-term hold and maintaining cash flow is primary goal, it is more realistic to provide rent concessions rather than increase TI allowances.