From Bidding Wars to Stalling Tactics, 3 ways Tenants Can Best Position Themselves in Today’s Leasing Market

From bidding wars to stalling tactics, the retail leasing landscape is experiencing a historic shift. This shift is leading to surprisingly tight inventory, super competitive bidding wars, and property owners holding their cards close to the vest.

The unexpected characteristics of this evolving post-pandemic market have caught many operators by surprise while others have pounced at the opportunities—no holds barred.?

So, how can tenants compete in this hypercompetitive market?

In this article, we’ll take a look at the current landscape as we move into the year and how tenants can best position themselves to win in today’s leasing market in 2022.

Market snapshot

Let’s face it. We were all caught by surprise. Nobody expected COVID to cause a lack of supply in real estate inventory.?

In fact, we were all expecting just the opposite. Those of us in retail real estate were all holding our breath waiting for the inevitable wave of inventory to hit the market. But in most markets and trade areas, that wave never came.

Many opportunities were leased prior to ever being marketed, and those that did make it to market were snatched up in the blink of an eye. We all assumed there would be a lot more space available either from existing sites or new ones.

However, that wasn’t meant to be.

Pandemic-prompted pauses on construction sites, supply chain interruptions, and labor shortages have all caused considerable delays in inventory deliveries. On top of that, we’re seeing sites that are mired in entitlement issues, zoning changes, or a slew of other hurdles that are causing pressures on existing availability and developable land, keeping fresh inventory from hitting the market.

These market interruptions have been coupled with a surge in pent-up and new demand as new concepts jostle for position against existing ones and traditional retail shapeshifts. Amazingly, instead of less demand, there is now more, especially for Class A and B properties. These opposing supply and demand forces have spawned intense bidding wars with property values being pushed up by actual and perceived tenant demand.

Not ones to miss out on making an opportunity mountain out of a molehill, landlords and property owners are leveraging the moment to its fullest potential to create better financial deals where they can.

Once-competitive tenants are losing deals because the rules have changed—or more accurately stated—are changing. Competition is fiercer than ever, and retail landlords and sellers are really holding their cards close to their vest to keep the upper hand in negotiations. Given that premium space is…. well….at a premium, many tenants are not only competing against numerous other operators in their category but against operators from other categories as well!?

While eager tenants are presenting bids and wanting to negotiate or at least get a counteroffer, many landlords and property owners are keeping prospective tenants at bay. The goal...either to create an unsolicited bidding war or stall as they continue rival negotiations behind the scenes and they themselves wait to secure the tenant they’ve set their eyes on to come on board.

The result is a hyper-competitive market leaving many operators and would-be tenants dazed, frustrated, and without a site to open their doors for business. This leads to higher prices, fewer options for consumers, and delayed timelines all around.

These delays can be a real issue for public companies that have declared that a certain number of stores would be opened by a specific date to appease Wall Street growth demand. Franchisees can also encounter problems if they have contingent agreements with franchisors for a set number of stores to open in a given market area.

Given the landscape, how can tenants secure space when inventory is so tight and competition so fierce?

There are several strategies that tenants can employ to increase their chances of winning a deal. We will focus on the three that will have the most impact.

Assembling the right team

Gathering the right team is where any retailer looking for space needs to start.

The tenant rep broker and their team will be the face of your brand in the marketplace. Hiring a highly experienced tenant representative broker that is extensively engaged in the market with landlords, sellers, and related broker relationships is essential.

These relationships are critical for insight into where negotiations stand, the type of deal structures a specific landlord prefers, and the probability of a tenant winning a deal.

As you move forward in the leasing process, the right vendors will be key to helping expedite leases, site plans, site study reports, entitlement issues, and a variety of other checkboxes that will need to be ticked. If you’re entering a new market, a good tenant broker will be instrumental in making these connections for you.?

Also, depending on your concept, you may want to consider the need for other members of your professional team including engineers, architects, contractors, and entitlement and/or contract attorneys. Having these folks on board to advise you before you sign a lease or contract, can prevent costly challenges in the future success of your site.?

Market knowledge

As you assemble your team, keep in mind that the right tenant rep should have extensive market knowledge. Having leased space in the market doesn’t mean that they have the right market knowledge and strategic approach.

After all, the tenant rep and their team will be your partners in developing and advising you on your strategic market plan alongside your internal team.

This market plan should include priority and targeted trade areas and will focus on assessing those areas from top to bottom to uncover existing and potential opportunities. Extensive market knowledge will be essential in creating an effective strategy to execute your plan.

Without a doubt, the more you know the better positioned you will be in the site selection and negotiation process. You must understand the landlord, the property, and the other tenants you’re competing against to find the right angle and increase your chances of getting the right deal.

We’re working with our clients to educate them about the market conditions, how things have changed, what’s going on with each relevant site, and how they can structure their deals to win a bid.?

We also understand that market knowledge goes both ways. In addition to working to educate our clients, we also work with them to educate their prospective landlords.

In my team, we begin this process in advance, pre-bid, as we identify potential sites that meet our clients’ needs and engage with those landlords potentially years ahead of an availability.

Your team should do the same to intentionally get ahead of the curve by going out to educate the landlord about your concept and get them excited about what it could do for their property and portfolio.

This will increase the likelihood of the landlord reaching out to your team if and when space becomes available. If space does unexpectedly open up, say if a tenant must close their doors or the landlord is considering terminating a lease on an option renewal, it’s critical for you and your team to be in a position to strike

That’s when boots on the ground make a big difference.

Boots on the ground?

In retail tenant negotiations, boots on the ground are a tremendous advantage.

Your team’s job will be to transparently communicate your needs early on and keep you top-of-mind with local landlords, vendors, and leasing agents. This will ensure that when the right opportunity is in its pre-nascent stages, they’re already thinking about your brand. And then, when something does become available, your team is already in position and able to react quickly.

Strategically, this now places the landlord or developer in a bird-in-hand situation where they have a brand they are already familiar with ready to alleviate them of their vacancy. They won’t have to jump through a bunch of hoops to understand what you want and need, and the process can be expedited based on the groundwork your team has already laid.

While the current retail real estate landscape is indeed competitive, these three strategies will ensure that when the right opportunity becomes available, your brand will have a clear and undeniable advantage.?

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Stay tuned for my next article, where I’ll point out the pitfalls to avoid when looking for space in this hot market!

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