Real Estate Lease managers must adapt to change

The real estate lease management industry is undergoing unprecedented change. The long-anticipated industry disruption due to the predicted growth of e-commerce has been in the air for years, but the COVID-19 pandemic has accelerated this growth faster than anyone could have predicted. In the span of less than one year, tenants have been forced to soberly reevaluate their brick & mortar strategy with an eye towards optimization. For many, this means finding ways to “do more with less”.

In the Spring of 2020, many tenants went rushing to their landlords to mitigate the impact of mandated store closures and/or operating restrictions. By most accounts, these discussions were exhausting, if not exasperating – for both sides. While these “Round I” (and in some cases, “Round II“) negotiations were a necessary evil for much of the industry, they typically produced little more than a short-term remedy for a longer-term problem. Declining foot traffic and softer store-level sales throughout much of the retail industry have brought about a greater emphasis on the optimization of store count, store sizing and overall occupancy costs than ever before. In the background, many commercial real estate departments are seeing reduced headcounts through corporate downsizing while simultaneously being tasked with increasingly larger internal mandates to drive their portfolios towards the future. In other words, to do more with less.

It’s Not Just About Base Rent

In order to maximize leverage, a full scope audit of all financial consideration transacted should be a component of every occupancy cost reduction effort. Why? Because the identification of past overcharges offers incremental negotiation leverage against the landlord. As tenants begin to adjust to the new paradigm, the most successful tenants will take a fresh look at how they manage their property base in the years to come. Efficiency, cost, and optionality will drive real estate decisions going forward. If the last year has taught us nothing else, it has taught us that change can come quickly – sometimes overnight.

Landlords know this as well and will eventually adapt to this change. Always be mindful of their struggles. Although it sometimes may not feel like it to those who have endured a seemingly endless series of battles, the adversarial nature of the industry’s COVID-related conflicts will be forgotten, and both sides will begin to move forward in a more mutually beneficial partnership.

NRTA’s Classroom live education series offers a Real Estate Finance for Lease/Property Administrators presentation. Classroom participants will review common financial ratios used by real estate professionals and discuss how these specific factors impact the property/lease administrator. Reserve a seat.

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