Burrr.... Lifestyle Centers

According to a recent article by KeyPoint Partners, the lifestyle or open-air retail developers are cold. Development is down 60% to 70% among some developers.

So far the Birmingham market has experienced a moderate slow down in retail activity, but I have yet to notice any of the larger centers having large vacancy increases. A slow down in development is one thing, but large amounts of vacancy in a market can get pretty nasty.

I have noticed that landlords are now becoming receptive to the market. One particular retail project that we are working on leased at $22 per square foot a year ago is now at $19 per square foot.

So what do you do if in a market like this? Landlords, try to sign shorter term leases. If the market improves, you have a quicker opportunity to increase rents. Speaking of increased rents, you may want to consider higher than normal annual rental increases that are built into the lease. Over the term of the lease these annual rental increases can help re-establish your property's value. Tenants, the advise is opposite. Try to negotiate longer term leases with options. If the market increases in value you are renting as below market rates. Don't forget your sublease clause. If the business doesn't work out, you might can make money in real estate by subleasing at a higher rate.