Originally published on June 15, 2021, by Esther Fung for the Wall Street Journal.
During the worst of the pandemic, many landlords offered deals where ailing retailers paid a percentage of their monthly sales in rent—rather than a fixed amount—to help them survive. Now, this once temporary way of charging tenants looks poised to outlast Covid-19.
More shopping-center owners are signing new leases where rent is tied directly to a portion of sales, at least for a period. These percentage-rent leases are especially attractive to newer retailers, offering some flexibility so that they aren’t saddled with large losses as they are starting out.
While most landlords tend to prefer the reliability of a fixed monthly rent payment, the wider use of percentage leases reflects how much retail has become a renters’ market.
Many retail businesses have struggled with competition from e-commerce, then took another blow when they faced pandemic-related lockdowns. Some didn’t survive, leaving landlords with excess space and compelling shopping-center owners to offer generous terms just to fill it.
“More brands are demanding it,” said Philippe Lanier, principal at EastBanc, a property developer, owner and manager of dozens of open-air retail properties in Washington, D.C.’s Georgetown neighborhood.