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Landlords No Longer Discounting Retail Rent As Vacancy Dips

The days of landlords discounting rent to fill empty storefronts due to the pandemic are long over, according to analysts, and rosy fourth-quarter retail reports highlight why.


U.S. shopping center vacancy in Q4 2023 was 5.3%, the lowest rate since Cushman & Wakefield began tracking the number in 2007. Resilient demand outpaced subdued new supply, pushing absorption up 71% from the previous quarter and boosting asking rents, the report states.

While many retailers stayed afloat due to concessions and agreements made with landlords early in the pandemic, landlords are far less likely to offer those now, The Wall Street Journal reported

“They’ll just say, ‘Covid’s over; those days are done,’” Ed Coury, senior managing director at retail-brokerage firm RCS Real Estate Advisors, told the WSJ. 

Average asking rents in Q4 were $23.73 per SF, rising 4.1% from a year earlier, according to the Cushman & Wakefield report. Asking rents have risen consistently since 2019, up 16.9% over 2019 levels and 41.1% over the past decade, the report states.

Store openings outpaced closures for the second straight year in 2023 despite some high-profile closings, according to Coresight data cited by CBS News. 2023 saw the shuttering of 4,600 stores, an 80% increase from the prior year, largely due to Bed Bath & Beyond’s bankruptcy. That was offset by almost 5,500 store openings, according to Coresight. 

"Some of our best stores were created from carved up Kmart or Sears locations," Burlington Stores CEO Michael O'Sullivan said in 2023, according to CBS. Burlington took over more than 40 former Bed Bath & Beyond stores, CBS reported.

Despite high inflation, reduced savings and rising interest ratesconsumer spending also rose last year, according to the Cushman & Wakefield report. Through November, real consumer spending rose 2.7% from a year earlier, and real retail spending rose 3.2% over the same period, according to the report. 

Considering slowing household income growth, tighter consumer credit and weaker corporate earnings, Cushman & Wakefield expects real estate demand to “throttle back” and retail fundamentals to moderate in 2024. 

Even so, concessions and discounter rents are unlikely to return.

Some pandemic-era agreements led landlords to accept a portion of monthly sales from tenants rather than a fixed-rent price, the WSJ reported. These kinds of agreements surged in 2020, as government mandates heavily impacted the way stores and restaurants could operate. Revenue from percentage-of-sales rent agreements jumped in 2021, according to Green Street data.

But those agreements are far sparser now that retail landlords are seeing high occupancies and rent growth. 

“For a tenant we believe in long term, our strong preference is for a fixed-base rent structure,” Jim DillavouParagon Commercial Group co-founder and national head of retail investments at Lincoln Property Co., told the WSJ. 

Percentage-of-sales agreements can lead to “uncomfortable conversations” if a landlord suspects a tenant isn’t doing everything possible to maximize sales, Dillavou said. Paragon agreed to accept a percentage of sales from less than 5% of its tenants early on in the pandemic, according to the article.