What: Landlords are willing to take advantage of the fact that retail is back on track

Why it is important: More and more retailers are looking at purchasing their stores, just like what Magasin du Nord did in 2023, in order to remain independent.

Retail property owners are shifting away from the concessions they offered tenants during the pandemic, reflecting a strengthening market for retail real estate. During the pandemic's peak, landlords had to adapt by lowering rents and accepting a portion of sales as rent due to government-mandated closures and social distancing measures. These strategies helped both retailers and landlords survive the economic downturn.
However, the situation is changing. Landlords are now less inclined to offer such concessions, citing the end of the COVID-19 crisis. This change is backed by data showing that store openings have outnumbered closures for two consecutive years as of 2023. 
The scarcity of new retail real estate construction is contributing to landlords' optimism, anticipating a competitive market for the limited available spaces. U.S. shopping center vacancies fell to 5.3% in the fourth quarter, the lowest since 2007, with average asking rents rising to $23.70 per square foot, nearly 17% above 2019 levels.
While retail landlords' negotiating power has increased, it is not absolute. Older properties still need concessions to attract tenants, and costs for renovations or new constructions have escalated. Percentage-of-sales arrangements are still more common than before the pandemic, often involving a base rent plus a percentage of sales after reaching a threshold. This approach benefits landlords when retailers perform well.

For Retailers, Business Is Back and Landlords Say No More Rent Discounts