As former shopping center anchors like Sears drop out of business, the empty spaces could cause additional problems for California commercial real estate landlords if the outlying tenants begin to complain of dwindling sales revenue. Commercial leases often allow for co-tenancy provisions for smaller retailers, such as alternative or reduced rent scenarios, that can hurt a shopping center owner’s cash flow even further.
However, when those provisions involve 25-year-old use restrictions — that anchor retailers must be national credit tenants, for example — it can become increasingly difficult for landlords to fill those spaces with adequate replacements. It may be time to revisit commercial real estate leases and examine precisely what the requirements are for replacing an anchor tenant.
Many co-tenancy provisions already agree that replacement by a comparable anchor retailer is acceptable, now landlords and tenants need to decide on what the definition of “comparable” is. According to GlobeSt.com, co-tenancy agreements written decades in the past included use restrictions that would prevent a retailer like an athletic or entertainment venue from occupying a space that was not considered “brand-relevant” to existing tenants.
But that shopping center formula centered on nationally recognized retail anchor stores is no longer what consumers seem to want. Instead, some shopping center landlords are already stepping up to work with their retail tenants and increase foot traffic in more non-traditional ways by incorporating new tenants that revitalize the mall experience.
CBRE.com reports that the largest mall owner in the U.S. is beginning to broaden its definition of a viable tenant base by including fitness centers, hotels and even areas for office use. As the market demand for destinations like department stores declines, shopping center landlords should continue to see a rise in success with alternative retail development.