Retail Apocalypse Is Not All Bad News For Surviving Mall Stores

Image courtesy of Ben Schumin

With retail chains going bankrupt or closing stores at a record pace, mall landlords have empty slots that need filling. That’s good news for the retailers who remain and are able to negotiate better deals for their mall stores.

The Wall Street Journal reports that the slew of retail bankruptcies and closures so far this year has left mall owners in a bind and more open to working with the retailers still littering their halls.

Vacancy rates in enclosed malls have increased slightly to 7.9% in the first quarter of 2017, from 7.8% in last quarter.

While the change is fairly insignificant, it’s given retailers a bit more ammunition to ask their landlords for lower rents, renovations, and more flexible terms.

Mall mainstay Express tells the Journal that it plans to renegotiate about 50% of its lease terms when they come up for renewal over the next three years.

“We’re going to continue to create more flexibility than we have today with our leases. And if we can’t get the rents we need, we will close stores,” the company said.

Last week, when Ascena Retail Group — parent company of Ann Taylor, Lane Bryant, and dressbarn — announced the closure of up to 650 stores, it said it may be able to save as many as 400 of those locations if it can successfully renegotiate its retail leases.

Retailers aren’t the only tenants looking to get a better deal: The WSJ reports that many restaurants are also flexing their muscles when it comes to lease terms.

“Food operators are negotiating very aggressive deals and they are getting away with it,” Cynthia Murphy, senior vice president at real estate services firm CBRE overseeing the mall leasing business, tells the WSJ. “More landlords are looking at food as an anchor to create sizzle for their centers.”

While landlords likely don’t want to lose more tenants, the WSJ notes that they aren’t just giving into every demand.

Instead, the success of lease negotiations seems to rely on who’s asking for concessions and where the mall is located in the first place.

Landlords who believe that a retailer has staying power or will bring in more customers might be more likely to provide that company with better lease terms.

Additionally, if the location is in a high-traffic area, the landlord might be able to backfill if tenants vacate. This means the landlord might be less likely to negotiate terms or give in to current tenants’ demands.