Emerging Retail Trends: Small Spaces and New Lease Terms

Retail Rental SpaceWhoever said bigger is better is no friend of independent retail, and apparently misinformed about the recent trends in the retail industry. There has been a growing favoritism among retailers towards smaller storefronts. Look at Walmart’s new initiative for express stores; the economy has forced some of the big wigs to rethink their leases and question how much store space is really needed to make the necessary sales. Technology is also a culprit in the downscale of retail storefronts, as people have become more comfortable and familiar with shopping online.

Negotiating Terms

As a result, all retailers, including the traditional brick and mortar stores, have begun to rethink their space needs before signing a new lease or renewing their current one. Many are also looking for a lease that provides an easy way out, if the economy should crumble again. Inevitably, landlords have been forced to revise their five-year lease plans. As StarTribune.com explains, “Normally, retail landlords are looking to sign up established store concepts to leases of at least five years. This gives them the kind of long-term stability that adds value to their properties, and thus makes financing possible. But with consumers keeping a tight hold on their checkbooks, there’s been precious little growth on the retail real estate front.” Little growth means new terms and conditions. Landlords have begun exploring temporary tenant options and have been subject to lease negotiations customized by the tenant. If you are looking to sign a lease or renew, now is your time to cut the deal of your life. First, you must consider how much space you really need. Can you do with less? Second, you must negotiate the lease to fit your terms and today’s conditions.

Entrepreneur magazine offers a checklist of items that must be discussed during lease negotiations. Among the items on that checklist are:

1)    Don’t accept a lease without an inspection. An “as is” deal isn’t one you want to make. This is the landlord’s way of getting out of repairs and spending money. You should be allowed to have an inspection and terminate the lease if the results are unsatisfactory. The only other way around this is if you have the landlord agree and represent the premises as “in compliance with all applicable laws, rules and regulations.”

2)    Get a “rent free” use period. No sense in paying rent until you have the store up and running. Therefore, be sure to ask for a 30 to 60 day window rent free in order to set up displays, fixtures and more in preparation for your grand opening.

3)    Take a look at previous tax and utility bills. This step is about budgeting. Most leases are “triple net,” requiring you to pay your percentage of the landlord’s property taxes and utility bills in addition to rent. You and your bank account want to be prepared for the payments ahead.

4)    Limit your liability for early termination. The landlord doesn’t care about the failure or success of your business; they only care about the rent coming on time and being paid in full. As the economy is volatile, it is crucial to ask the landlord to cap your liability at one-year’s rent in case your business is forced to close before the lease expires.

For an extended checklist, click HERE.