Leasing retail space is different from leasing any other type of commercial property — and those differences matter enormously for your business’s success. The wrong retail location can doom an otherwise excellent concept. The right location, secured on the right terms, can be the foundation of a thriving business. I’ve worked with retailers across all formats and sizes, and the principles that drive successful retail leasing are consistent regardless of your concept or market.
Here’s how to approach it.
Location Is Everything — But Define What Location Means for Your Business
In retail, location isn’t just an address — it’s a constellation of factors that determine whether your target customers will find, visit, and return to your business. Before you search for retail space, define precisely what location means for your specific concept:
- Traffic counts: What minimum daily vehicle or pedestrian traffic does your concept require?
- Demographics: Does the surrounding population match your customer profile in terms of income, age, family composition, and spending habits?
- Visibility and signage: Does your concept depend on drive-by visibility, or are you a destination that customers seek out?
- Co-tenancy: Are there anchor tenants or neighboring businesses that will drive traffic to your location?
- Parking: What parking ratio does your concept require, and is it readily available?
- Access: How easily can customers enter and exit your location from the adjacent roadway?
Getting these parameters defined before you tour spaces keeps you focused on locations that can actually work for your business.
Understand Retail Lease Structures
NNN Leases
Triple net leases are the most common structure in freestanding and strip retail. The tenant pays base rent plus property taxes, insurance, and common area maintenance (CAM) charges. NNN leases tend to carry lower base rents but require careful modeling of the total occupancy cost including all operating expense pass-throughs.
Percentage Rent Leases
Common in enclosed malls and some lifestyle centers, percentage rent leases include a base rent component plus a percentage of gross sales above a defined breakpoint. These leases align landlord and tenant interests around the business’s performance — but require careful negotiation of the breakpoint and the percentage to avoid paying excessive rent during strong sales periods.
Gross Leases
Less common in retail than in office, gross leases provide simplicity — a single rent payment covering most expenses. They’re more common in smaller strip centers or multi-tenant retail buildings where landlords prefer to manage operating expenses centrally.
Key Retail-Specific Lease Provisions
Co-Tenancy Clauses
Co-tenancy provisions protect retailers from the loss of anchor tenants whose presence drives traffic to the center. A well-drafted co-tenancy clause allows a tenant to pay reduced rent or terminate the lease if a named anchor tenant closes or vacates. Securing co-tenancy protection is particularly important for tenants in larger retail centers where anchor performance directly affects foot traffic.
Exclusivity Provisions
Exclusivity clauses prevent the landlord from leasing space in the same center to a competing business. For retailers with a specific product or service focus, exclusivity can be a critical lease protection. Negotiate exclusivity provisions carefully — the scope of the exclusion, the geographic area covered, and the remedies for violation all require precise drafting.
CAM Charges and Caps
Common Area Maintenance charges — the tenant’s proportionate share of costs to maintain parking lots, landscaping, lighting, and shared building systems — can be a significant and variable expense in retail leases. Negotiate annual caps on CAM increases, audit rights to verify CAM calculations, and exclusions for capital improvements that shouldn’t be passed through to tenants.
Kick-Out and Termination Rights
Sales-based kick-out clauses allow a tenant to terminate a lease if sales fall below a defined threshold for a specified period. These provisions protect retailers from being locked into an underperforming location when the market or concept isn’t working as projected.
Evaluate the Trade Area Thoroughly
Before committing to a retail location, conduct a thorough trade area analysis:
- Study the demographic profile of the surrounding population within your target trade area
- Analyze traffic counts at key intersections and access points
- Identify competitive businesses within the trade area
- Research the retail center’s occupancy history and current anchor tenant health
- Visit the location at different times of day and week to observe actual traffic patterns
The difference between a retail location that works and one that doesn’t is often visible on the ground before you sign the lease — if you know what to look for.
Negotiate From a Position of Knowledge
Retail landlords are sophisticated negotiators. Match their sophistication with:
- Market data on comparable retail rents and concessions in your target trade area
- A credible business plan and sales projections that demonstrate your concept’s viability
- Competing location alternatives that create genuine negotiating leverage
- A tenant representative with specific retail leasing experience who knows the market and the landlords
If you’re looking for commercial retail space and want an advisor who understands the unique dynamics of retail leasing and how to secure the right location on the best terms, I’m Matt Bingaman. Contact me today and let’s find the location your business deserves.