Retailers May Be Looking At Higher Rents Shortly

To the extent that the Long Island area is typical of a U.S. retail space lease situation, there is reason to see the retail leasing/rental situation getting more difficult, with landlords finding it easier to raise rents now given an improving economy and the declining volume of available retail space, according to The Wall Street Journal.

Retail rents on Long Island rose to an average of $23.05 a square foot in the second quarter, an increase of 0.9 percent from the first quarter, the story said, attributing the data to Reis Inc., a real-estate research firm. The second-quarter increase tied Louisville, Ky., as the highest in any market in the country, and was three times the rise nationally, Reis said.

As chains were routinely closing stores over the last few years, the tiny speck of good news out of that was that rental leases were able to be negotiated at good prices. Alas, with the upturn comes the possible end of that bit of good news.

Another factor that is supporting rent increases are difficulties that some developers are facing in getting new construction—and/or new tenants for existing and empty malls—approved. Taubman Centers Inc., for example, has spent years fighting community opposition to a new mall it wants to build just off the Long Island Expressway in Syosset. "The barriers to entry are unbelievably high," Neal S. Kaplan, managing partner of Woodbury-based Kabro Associates, which owns eight local shopping centers with a total space of about 750,000 square feet, told the Wall Street Journal.

All told, this suggests some budgets may have to be rewritten to acknowledge soon-to-be-higher real estate costs. "Between 2007 and 2010, the market was soft and tenants could demand free rent and improved space from landlords, said Jayson Siano, managing principal with Sabre Real Estate in Garden City," the Journal said, adding a pessimistic retail thought from Siano: "Today, the market has corrected itself. The landlords are able to stand their ground."

For more:
- See this Wall Street Journal story

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