This year has had many drastic effects on business owners and how they conduct operations.
While some have managed to stay afloat, dozens of business owners have had to file for bankruptcy or close their doors. Unfortunately, this has also led many companies to forego making rent payments for several months, leaving commercial landlords unsure of how to make ends meet.
Now, as many are seeing rent rates decline over time, it’s clear that this isn’t just the norm for run-of-the-mill retailers, as rates at large upscale shopping centers have also begun to drastically drop.
Commercial landlords must understand what this drop means for protecting their livelihoods.
Shopping Center Rent Rates Drop
Commercial landlords have been impacted in a major way during 2020.
Many landlords are seeing a major decline in cash flow due to paused or incomplete rent payments from tenants. This is especially frustrating for the many landlords across the nation with brand name retailer tenants that are able to pay rent but choose not to.
This, coupled with the potential for mass vacancies as retailers continue to close their doors indefinitely, has led to many complex struggles for commercial landlords, including commercial lease disputes.
Now this issue has spread to upscale shopping centers that typically command higher rents, as shopping center rent rates are now drastically dropping across the country.
First beginning in New York City – with the hotbed of high-end shopping – 16 major shopping areas saw a massive decline in rent, with the average cost per-square foot lowering to $688.
This is the first time since 2011 that rent rates have fallen below $700 in the city. This drop has been correlated with less foot traffic, as patrons who visit higher-end shopping areas don’t come because they need to buy something but rather for the experience (which has dramatically changed).
Despite many retailers having reopened following the lifting of state mandated closures due to the COVID-19 pandemic, many consumers are still choosing not to enter stores – including those inclined to shop at high-end retailers.
These districts are also typically a major tourist attraction, but with travel on hold in many areas, fewer out-of-towners are hitting luxury shopping areas.
How Recent Rent Drops Could Affect Commercial Landlords
According to the Boston Consulting Group, global luxury sales are predicted to decline 29% this year alone. It’s important to note that this prediction isn’t just related to New York City, as shopping centers on Chicago’s Magnificent Mile and Los Angeles’ Rodeo Drive are also likely to take a major hit due to changes in consumer behavior.
These major changes will likely compound the problems commercial landlords already face with retailers. Lower-end and even brand name retailers have already stopped or drastically cut rent payments to their commercial landlords in recent months.
What Commercial Landlords Can Do
As many businesses across the nation grapple with the decision to close their doors or struggle to make rent payments, commercial landlords are continuing to suffer under immense financial strain.
This is true for both high-end and lower-end retailers, as when commercial tenants decide to underpay rent or simply forego making payments altogether, it leaves landlords with no source of income in order to support their business.
Additionally, increased vacancies from businesses that have closed down operations entirely ultimately leave landlords without a tenant to make payments. Because of these and other complexities, it’s important to consult with an experienced commercial lease dispute attorney.
Houston Commercial Lease Dispute Attorneys
No matter if they are a high-end, large-scale, brand name retailer or a small business, when retail tenants attempt to freeze, delay, or not pay rent, it leaves landlords with nowhere to turn in order to keep their own businesses afloat.
At Raizner Law, we understand just how difficult it can be to navigate complex lease disputes. We’ve worked with business owners and landlords alike to ensure their livelihoods are protected.