September 16, 2019
By Dennis Kaiser
Typical retail lease negotiations have changed as retailers try to compete in a multichannel environment. Nordstrom’s requirement for curbside delivery or the local deli’s need to accommodate rapid pick-up and curbside delivery are all part of today’s lease negotiations.
Check out our latest CRE Q&A with Coreland Companies Matt Hammond, Senior Vice President, Brokerage, to hear how landlords are working to accommodate the new requirements as the needs and priorities of retailers and restaurants have shifted.
Q: How has multichannel retail changed the lease model?
A: Retailers and restaurants are viewing physical space differently since they must successfully engage with customers across all channels–online, mobile and physical stores. Site selection priorities have definitely changed, and tenant improvement allowances have increased across the board.
It has forced everyone to think differently regarding lease terms. For example, the basis of gross sales for the purposes of figuring out percentage rent is debatable. Do you account for the sale made online but delivered in store, or a sale made in a store but delivered to a home? Shorter lease terms and modified gross or full gross leases are all a part of the conversation today, because space is being used differently.
Q: What are some of the specific ways online orders and rapid pick-up are changing site selection?
A: Retailers and restaurants are viewing physical space differently since they must successfully engage with customers across all channels–online, mobile and physical stores. Site selection priorities have changed, tenant improvement allowances have increased across the board, and shorter term leases are more common.
There are also new interpretations of basic lease language. For example, the basis of gross sales for the purposes of figuring out percentage rent is debatable. Do you account for the sale made online but delivered in store, or a sale made in a store but delivered to a home?
Q: Are we seeing a change in the planning of shopping centers and parking fields?
A: Yes, changes are coming because national tenants are thinking beyond typical models. Chipotle recently introduced its Chipotlanes concept in which it is working to incorporate drive-up windows without the parking limitations of a traditional drive thru. The argument is that a mobile order customer who has already paid and been alerted that their order is ready, spends a fraction of the time driving thru this pick-up window.
Similarly, but focused in urban locations, Starbucks is also testing a pick-up window on the exterior of its spaces.
Q: Are there major changes on the interior of the stores as well?
A: A greater percentage of restaurant sales today are done through online ordering. Knowing this, restaurants want to make it very convenient for all customers – the traditional customer, the delivery service and the mobile order customer. Most have implemented isolated pick-up locations within the store. They are also dedicating employees specifically for the online order line, as to not slow-down an order from a walk-in customer.
Continuing to enhance the speed of a transaction is central to so many changes within our traditional retail environments. The irony is that lease negotiations seems to be moving slower than ever before, as everyone figures out just how far to push the boundaries of the typical lease model.
For comments, questions or concerns, please contact Dennis Kaiser