Retailers Seek Longer Leases, Smaller Stores
Retailers are signing longer-term leases with smaller footprints and working to seize opportunities presented by online shopping, according to a new report from CBRE.
The report found that the average retail lease term in the first three quarters of the year rose to 96 months, compared to 90 in the same period in 2023.
Generally, the stores have smaller footprints, enabling retailers to open more locations in retail centers closer to customers. The longer terms are also seen as guarding against rent increases.
In 3Q 2024, the average lease term by size fell for stores under 25,000 square feet and over 50,000 square feet. However, leases in the 25,000 to 50,000 square feet category rose slightly compared to their levels in prior quarters.
Many retailers are locking down space in neighborhoods, communities, as well as strips and power centers to accommodate changes in consumer preferences. Through Q3 this year, lease terms for the first three categories averaged 92 months, up from 83 months in 2023.
“Power center leases averaged 100 months through Q2 of this year, up from the 94-month average in the same period last year,” the report noted. Power centers – 250,000 to 750,000 square foot outdoor shopping malls usually containing three or more big box stores – anchored by grocery stores tend to attract foot traffic, which lures in other retailers.
At the same time, many brands are responding to the demands of online shopping by utilizing stores for curbside pickup, online returns and rapid home delivery, serving in effect as last-mile distribution centers.
Retailers are also drawn to markets with strong population growth, with Tampa, Nashville, San Antonio, Houston and Charlotte seeing the longest lease terms, along with Detroit and the Inland Empire, which is attracting residents escaping from high-cost areas like Los Angeles and Orange County. Suburban Maryland, Austin, and Raleigh are other markets where leases are lengthening.