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Retail Tenants Less Insistent on Concessions

Concessions are playing less of a part in retail leasing negotiations, at least compared to two years ago.

Helped by rising retail sales and an improved sector outlook, landlords now have more of a choice about whether to grant new and existing retailers months of free rent or let them forgo common area maintenance (CAM) charges. And tenants have become more circumspect about asking for them.

As recently as 2010, many tenants were still expecting rent reductions when discussing new leases. In turn, landlords were worried about violating occupancy provisions and were willing to go the extra mile to keep vacancies from spiking up, according to John Bemis, executive vice president and director of leasing with Jones Lang LaSalle Retail, an Atlanta-based third-party property management firm.

Now, with the average vacancy for 2012 projected to fall to 9.2 percent and effective retail rents forecast to rise 1.2 percent on a nationwide basis, according to Marcus & Millichap Real Estate Investment Services, most of the necessary corrections in the marketplace seem to have taken place. Owners of good quality properties no longer need to worry about violating occupancy clauses or falling into default.

What’s more, leftover vacant spaces from retailer bankruptcies at class-A and class-B centers are being snapped off the market, even if at rates that might be lower than peak, notes Thomas H. Maddux, principal in the Baltimore office of KLNB LLC, a commercial real estate services firm.

“Things are clearly better for landlords than they were a few years ago,” Maddux says. “But there is still quite a bit of opportunity for tenants who are active and interested in doing new deals.”

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