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Rents Are Coming Down

Written By: Mel Jones - President
Feb 8, 2009
Article #35

The tide has changed in the retail rental market.  Rents are coming down and at a fast pace. 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 we’re seeing rents decline 25% or more depending on the area.  And this broker expects to see rents continue to decline in 2009 as retail vacancy rates sky rocket.

We have one client who we helped negotiate the rent from $14,200  to $9,500 and we helped another tenant negotiated the rent from $12,200 to $9,500.  These are a few examples where the landlords came to bat for their tenants.

But there are some landlords who won’t budge on the rent.  Unfortunately many of those tenants have gone bankrupt or are about to go bankrupt as a result and the retail center is hurt with a dark space creating a domino effect.  

To successfully negotiate a rent reduction, there are certain tenant conditions needing to be in place. First, the business must show it is in trouble by providing good financial statements to the landlord.  Second, the rent needs to be a substantial part of the business’ revenue.  If the rent is in excess of 20% of gross revenue (excluding sales tax), that would be substantial.  Finally, there shouldn’t be a financially strong individual or corporation on the lease.  In cases where lease has been assigned, there shouldn’t be a financially strong entity that is the assignor.  If there is, the landlord has little incentive to negotiate the rent other than to avoid having the space go dark, 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.  

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