Exclusive Q&A: Retail partnerships key to reimagining downtown real estate

Retail and real estate partners that are open to collaboration, sharing risk and providing convenience to shoppers will jump-start real estate deals in downtown areas.

That’s according to Jill Rowe, partner, at law firm Venable LLP, who spoke with Chain Store Age’s Deena Amato-McCoy about how ongoing collaborations can create better retail experiences.

How has a hybrid workforce impacted landlords’ office, retail and residential real estate spaces?
The continued prevalence of remote and hybrid workforces means consumers are doing a majority of their shopping and dining in their home neighborhoods.

With consumers spending at least half of their day at home during the week, pedestrian traffic at downtown properties has decreased.

At the ICSC New York conference in December, Andrew Minea, director of sales, North America at Springboard, a provider of footfall counting and artificial intelligence (AI)-powered analytics for retailers and landlords, reported that downtown traffic increases between 20% and 25% on weekdays, and between 10% and 15% on weekends. This lower volume takes a toll on retailers and restaurants located in downtown cores that lack a significant residential presence.

How can this become an opportunity moving forward?
There is a lot of buzz in the planning and real estate communities about converting downtown office space to residential space — a move that will give consumers a place to live, socialize and shop.

It’s an expensive concept that will require creative thinking by developers and investors, as well as from city officials. However, this mixed-use concept holds great promise for engaging shoppers in this new world of remote work, which seems to be here to stay.

When considering leasing space in these mixed-use locations, what leasing terms should retail tenants be mindful of?
Tenants should pay attention to clauses in the lease that we used to call “boilerplate.” Before the pandemic for example, tenants tended to ignore provisions like force majeure (a common clause in contracts which essentially frees both parties from liability or obligation in the event of an extraordinary event or circumstance beyond the control of the parties). Now, these and similar provisions are being negotiated in detail to more fairly align risks between landlords and tenants. 

Additionally, arbitration clauses (or lack thereof) suddenly became significant when the courts shut down for all but the most significant criminal matters. 

Finally, both parties should think long and hard about their percentage rent clauses — these refer to a percentage of sales in addition to (or in lieu of) a minimum base rent. Further, do both landlord and tenant share equitably in the risks of a downturn and the benefits of an economic comeback? These are all issues to consider.

What advice would you give retail partners pursuing new real estate opportunities? There are three things that retail and restaurant tenants should keep top of mind. First, shoppers want customized and individualized engagement with their preferred brands — and retailers need to deliver. 

For example, online ordering demand continues grow. Retailers and restaurants need to find new ways to leverage this booming service if they want to engage shoppers, including creating new reasons to encourage them to pick up orders in-store. More importantly, they need to use mobile and online ordering as a means of providing an experience — not just a product.

Next, tenants always need to be willing to adapt to the changing real estate environment. Retailers and restaurant chains have learned to pivot on a dime over the last few years, whether due to ever-changing government regulations, fluctuating consumer demands, supply chain disruption or labor shortages. Many brands may be exhausted from the effort, but the lessons learned from being flexible will continue to define success.

Finally, success stems from resiliency. Successful retail and restaurant chains took a deep breath and made it through three years of utter turmoil. That perseverance will remain essential moving forward. Every day we read a new prediction about the economy, the global supply chain, labor and consumer whims. Restaurants and retailers that keep a steady eye on these and other evolving trends will make it through and become stronger.   

Americans get great joy from shopping and dining out. The consumer’s ability to spend will fluctuate, but efficiently-run, consumer-focused, adaptable retail and restaurants will survive — and thrive.