Q&A: Is this the year of the landlord?
Three years ago, Elmsford, N.Y-based DLC Management acquired capitalization and went on a buying spree aimed at doubling the size of its open-air center portfolio.
Its acquisitions haven’t ceased. Last October it acquired 10 centers in California and Washington in a single deal, giving it its first major presence on the West Coast.
Chain Store Age sat down with DLC’s COO, Chris Ressa, to learn why his company has been so bullishly carving out wide swaths of retail real estate.
At the New York ICSC show last year, what we heard from nearly all developers was that good space for 2026 was pretty much all snapped up and chains were doing deals for 2027. What’s the near future look like for expanding retail brands?
This is the year of upward price movement. For the first time in a long while, pricing power has shifted to landlords in a way that is both real and sustainable. Occupancy continues to maintain record highs, tenant demand remains at an all-time high, consumers remain resilient, and new supply remains limited. When you combine all of that, the economics are clear. Rents are moving higher.
Has the balance of power in the lease negotiation process shifted from the retailer to the developer?
These shifts never happen overnight. In 2021, vacancy rates were higher than today’s market. But mature retailers gained confidence in their ability to be successful long-term. At the same time entrepreneurship, and new business formation was growing rapidly, creating new uses filling up shopping center space. I believe this is the year when rent growth truly shows up across the board.
From 2008 through 2019, the narrative was that e-commerce would kill retail. Several brands failed, but the industry still leased a significant amount of space. During that period, the balance of power sat squarely with retailers, and landlords often accepted aggressive terms to keep centers full. Today, landlords are asking retailers to share in the costs needed to open a new store. Sometimes that is showing up in higher rents, sometimes less concessions, sometimes less landlord-provided capital, and sometimes a combination of all of it. That recalibration is well underway.
Aside from developments going up in growing markets in the Sun Belt, no significant new centers are being built, and it is the opinion of most people in the retail real estate industry that very few will be started for another decade. Why no new builds?
Over the course of the last 15 years construction cost increases have outpaced rent increases. The returns for many are simply not there to build new shopping centers at scale across the United States. The unlock to new development is a continued balance of power shift, with tenants willing to pay more rent, or contribute more capital to deals.
Starting in 2023, DLC raised significant capital to increase the pace at which it was acquiring shopping centers. We believed the fundamentals of open-air retail were already strong and poised to get stronger. Occupancy was growing. Rent growth was visible. Cap rates were attractive compared to other institutionally invested asset classes. We viewed that period as an attractive vintage to be buying.
And, for at least the last two years, retail real estate properties have become the prime target of private investors.
We agree. The investment case for retail real estate is exceptionally strong, and every indicator suggests that strength will continue. High occupancy and rent growth are powerful drivers. When investors have confidence that those dynamics will persist, the sector remains very attractive.
For retailers, the message is clear. Brands that have been rigid about location and deal structure will need to become more flexible. What we saw at the most recent ICSC show is that many of them already are.
