Retail space owners: Negotiating new leases in times of inflation

[Nikolas Engel]

Hello to all retail space owners,

I would like to ask your advice concerning how you manage annual increase in new lease agreements during times of inflation. 

I am in negotiation with a new tenant on a 10 year lease, they only want to do 2% annual increase - we can likely land on 3% but I am not sure if that is the right decision in this changing economic environment.

1. Do you consider inflation an issue that you want to be reflected in new lease agreements? Or do you do you just stick with the usual 2-3% annual increase.

2. If you do want to reflect inflation in the lease agreement, how would you do it? Annual increase based on CPI, or just a higher percentage increase - say 5%, or ..... maybe there are more creative and flexible ways?

Thank you for your ideas, experience and support.

Nik

[John McKee]

I think 3% is fair, however most corporate tenants will only give you 2% or 10% every 5 years.  Inflation is certainly out of control, but if you have a loan that is locked for 5 years then you don't have to worry too much about it until you refinance, but by then you will have already increased the lease by 15% which should more than compensate you for any higher rates.  The biggest thing is to insure the tenant pays all the taxes, insurance, and maintenance which will continue to increase.