Bargaining Power – Will The Tables Be Turned?

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We could have made today’s posting our shortest ever by posting only its title. But, that wouldn’t be Ruminations.

Traditionally, though bargaining power has been very site/situation-specific, larger enterprises always had a head start. And, though that meant large, mostly national, tenants with “brand” names, more often it meant the “landlord.” Owners of multi-tenant projects usually had the upper hand over most tenants and prospective tenants – the small ones who populate and support our shopping centers. While large tenants could easily negotiate for exclusive use rights, even if their market power made those rights mere surplusage, small tenants desiring protection for their core businesses found themselves whistling in the wind. Large tenants got to use their own, tenant-focused leases forms, while small tenants were offered a Hobson’s choice – take it or leave it.

This was possible because of market dynamics. Landlords wanted large, brand-name tenants at their properties more than those tenants “needed” to be in any one particular location. Large tenants could tell a landlord that they were opening 25 stores “this year,” but, landlord, your project doesn’t have to be one of them. On the other hand, small, often independent, tenants “needed” the location more than the landlord “needed” any particular one. If you want to negotiate price, don’t tell a seller that you “absolutely, positively love the item and you ‘must’ have it.”

Now, we’re going to see a lot of space inventory. Many existing tenants, large ones but mostly smaller ones, are not coming back. Landlords will need new ones – ones who had not previously leased space or been in business, at least not at brick and mortar locations. If history is any guide, there will be an influx of new businesses created by those who had previously been employees, ones who have not been called back, and ones who see this time as an opportunity to take control of their own livelihoods. Some currently in business may want to move or add a location. Will they experience the same stone-faced responses to their specific leasing needs? We’ll see.

We predict that the businesspeople-landlords will display much greater flexibility than we’ve seen for a long time. They, like their tenants and former (or soon-to-be former) tenants, are feeling real economic pain and will be pragmatic when it comes to making deals. Our fear, however, is that just like those generals fighting the last war, those who actually negotiate deals might not get the message. They haven’t felt the pain – they aren’t hurting. They may not realize that the ground has shifted. Man’s best friend is his dogma. Yes, almost all will be responsive to directions from their principals, but will they truly absorb the message? Or, will they act (negotiate) as if nothing has changed? Will they realize that there will be enormous competition for tenants, not for space? Others will be making deals unimaginable even months ago? “My way or the highway” probably won’t have the intended effect for a long time to come. The shoe may be on the other foot, but if we don’t look down, we won’t realize it.

Readers, are we right? Have you seen this happening? Have you seen signs to the contrary? Tell us.

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