The tide has finally changed in the retail rental market. Only a short couple years ago Landlord’s called the shots on the retail rental market, asking ridiculous rents from unsuspecting renters who had little understanding of the level of revenues needed to cover those high rents and still show a reasonable profit. In some cases Landlord’s in South Lake Tahoe were asking $5 to $6 per square foot – without NNN! Today, at least 25% of those shops are dark.
From San Diego to Seattle most landlords are cooperating with tenants helping them through these tough economic times. SellingRestaurants has helped many tenants negotiate rents down by as much as 32%. On the average rents are declining 25% or more depending on the area, with some areas down as much as 50%. And this broker expects to see rents continue to decline into 2010 as retail vacancy rates sky rocket.
To successfully negotiate a rent reduction, certain tenant conditions need to be in place. First, the business must be in trouble. This means it must produce financial statements to support its’ bad conditions. Second, the rent should be a substantial part of the business’ revenue. Finally, there shouldn’t be a financially strong individual or corporation on the lease. If there is, the landlord has little incentive to negotiate the rent, which many large corporate landlords don’t seem to care about as they have investors that must get their return on investment.
But there is little doubt the tenants are finally in the driver’s seat and we can expect this trend to last for the next couple years. Keep an eye out for the next trend – the banks foreclosing on the landlords! Read your leases to see what happens in those cases!
Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry. Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer. Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world. There he participated in more than $11.5 billion of merger and acquisition transactions. He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University. Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.