Retail Leasing Strategies Evolve in Uncertain Economy

Retail leasing strategies are increasingly flexible as retailers prioritize adaptability and leverage.
Bankruptcy filings offer retailers a chance to renegotiate leases and reshape store footprints.
Shorter lease terms, kick-out clauses, and sales-based rents are becoming more common.
Landlords weigh the tradeoff between stable rent and the potential upside of percentage rent deals.

Key Takeaways

Retailers Embrace Flexible Leasing

According to Globe St, retailers are moving away from traditional, long-term leasing models in response to a dynamic economic landscape. Rather than treating retail leases as static occupancy costs, companies are viewing them as strategic tools to maximize flexibility and bargaining power. The approach allows retailers to better respond to everything from changing consumer trends to broader financial pressures.

Bankruptcies Shift the Power Balance

Retail bankruptcy filings have become a key moment for lease renegotiation. Under Chapter 11, companies can assume or reject leases—offering leverage to restructure portfolio costs or exit underperforming locations. Recent cases include Blink Fitness, which reshaped its lease obligations following a $121M acquisition by PureGym, and Claire’s, where new ownership renegotiated terms on most stores. These changes are often welcomed by landlords eager to avoid mass vacancies.

Short-Term and Sales-Based Leases Grow

Beyond bankruptcy, retailers are increasingly favoring shorter initial lease terms and flexible kick-out clauses as they shift their leasing strategies. These provisions allow them to exit if store performance drops or strategies evolve. Many now structure leases with lower base rents and a percentage-of-sales component, giving themselves protection during sales downturns while offering landlords a share of the upside when business is strong. This shift comes amid a broader leasing slowdown, as many retailers adopt a wait-and-see approach in response to softer consumer demand and macroeconomic uncertainty.

Landlord Perspectives Differ

While flexible rent structures appeal to many retailers, landlords weigh the pros and cons. Some prefer steady PSF rents to support asset valuations, especially institutional owners like real estate investment trusts (REITs). Others accept the added risk of percentage rent deals, recognizing the potential for greater returns when retail sales surge. Ultimately, both sides aim to create vibrant, profitable shopping environments while managing risk in an evolving market.