What Goes Around Comes Around

As 18% of retail capacity is predicted to go vacant in 2009, many are talking about retailers and restaurants increasingly requesting rent concessions from landlords in order to increase operating margins. While it is a “buyers market,” these rent concessions are not as prevalent as some operators would like to believe. Leases are longterm contracts, so to the extent that rent renegotiations are occurring, they most likely take place when leases or option periods are expiring. The landlord/restaurateur relationship is a longterm partnership, and forcing a loss on the landlords in the short term may not be in the restaurateur’s best longterm interest, since when the market turns, these memories will be etched in landlords’ minds.

There are, however, certain operators poised to benefit from the current softness in demand the ones whose portfolio of locations is largely nearing lease expiration/extension periods and who also are a significant part of a large developer’s portfolio. General Growth Properties, who recently filed for bankruptcy, is a good example. The unanswered question here is how affected GGP will be by its creditors in being able to work with restaurateurs to keep its malls full and active.