Retail Leasing Shift: Services Outpace Goods in 2025

Retail leasing is shifting. For the first time on record, service-based tenants leased more retail space than goods retailers in 2025, accounting for 50.4% of activity, according to CoStar. Fitness, entertainment, and experiential concepts continue to expand as retail centers evolve to meet changing consumer demand. 2-minute read: https://lnkd.in/gWQCFCF9 #RetailTrends #ExperientialRetail #RetailLeasing #BlueWestCapital

Chapter 5: The Retail Asset Lifecycle Leasing Strategy: Building for Sustainability, Not Just Occupancy Leasing is often viewed as a race toward occupancy percentage. But occupancy alone does not define asset strength. A mall can show high occupancy and still struggle with underperforming tenants, high churn, weak brand perception, or unsustainable occupancy costs. Sustainable leasing strategy balances multiple variables simultaneously: - Revenue generation - Brand alignment - Category depth - Catchment relevance - Occupancy cost sustainability - Long-term renewal probability Short-term vacancy filling may create temporary comfort. However, incorrect tenant placement can weaken positioning and affect neighboring stores. In malls with high F&B and entertainment allocation, calibration becomes even more important. F&B increases dwell time, but oversupply can dilute productivity. Similarly, entertainment anchors must align with catchment demographics and parking capacity. Leasing discipline requires patience and perspective. Each lease signed today typically shapes the mall’s ecosystem for several years. That means leasing decisions must look beyond the current financial year. It is also important to understand the tenant’s business model. Brands that perform well in one micro-market may not replicate performance elsewhere. Occupancy cost ratios must remain realistic to ensure tenant sustainability. Strong leasing is not aggressive. It is thoughtful. It asks: - Will this brand contribute to long-term stability? - Will it strengthen the ecosystem? - Will it enhance adjacency performance? Leasing is not about filling space. It is about shaping identity. --------- This reflection is part of “The Retail Asset Lifecycle” - an ongoing exploration shaped by my experience and practical insight into how retail assets evolve and how leadership must evolve with them. #RetailAssetLifecycle #RetailAssetManagement #MallLeadership #RetailStrategy -ADS #MomentsThatTeach #ADSThoughts

Shopping malls don’t have a demand problem. They have a testing problem. Behind every leasing decision, there’s a long list of brands waiting to enter but no real way to validate them inside the mall before committing to a store. So decisions are still based on assumptions. Not real customer behavior. But what if malls could test brands before leasing them? With Diagora, brands don’t enter as stores. They enter as products. Placed across common areas; curated, discoverable, scannable. Customers interact, explore, and purchase instantly. And every interaction becomes measurable. This creates a new leasing model: Brands start with product-level presence → prove demand with real data → scale into pop-ups → become permanent tenants No guesswork. Just performance. For malls, this means: new revenue streams, better tenant decisions, and real-time customer insight. For brands: a low-risk way to enter and validate the market. The mall is no longer just a landlord. It becomes a commerce operator, owning the discovery layer across the entire space. And once that layer is in place… every product becomes a store.

CRE Concept Series: Understanding Percentage Rent (and the Breakpoint) In retail commercial real estate, leases often include a component called Percentage Rent — a mechanism that allows the landlord to participate in the tenant’s sales performance. Instead of relying entirely on fixed rent, the lease structure typically includes: • Base Rent (Minimum Rent) – the guaranteed rent paid by the tenant • Breakpoint – the sales level at which percentage rent begins • Percentage Rent Rate – the agreed percentage of sales above the breakpoint The key concept here is the Breakpoint. There are two types: 1️⃣ Natural Breakpoint This is derived mathematically from the base rent and percentage rate. Breakpoint = Base Rent ÷ Percentage Rate Example Base Rent: $200,000 per year Percentage Rent: 5% Natural Breakpoint = $200,000 ÷ 5% = $4,000,000 In this structure, the tenant pays: • Base Rent of $200,000 • Plus 5% of sales above $4M So if annual sales are $5M, the percentage rent would be: ($5M − $4M) × 5% = $50,000 Total Rent to Landlord = $250,000 2️⃣ Artificial Breakpoint Sometimes landlords negotiate a lower breakpoint than the natural one to participate in the tenant’s sales earlier. Example: Base Rent: $200,000 Percentage Rent: 5% Artificial Breakpoint: $3M If the store generates $5M in sales: ($5M − $3M) × 5% = $100,000 Total Rent = $300,000 This structure is common in high-performing retail locations such as prime malls, where landlords expect strong tenant sales. Why this matters in underwriting For landlords and investors, percentage rent introduces variable income tied to retail performance. When analyzing retail assets, key questions include: • Are tenants consistently exceeding breakpoints? • How much of the property's income comes from percentage rent vs base rent? • How sensitive is income to retail sales cycles? In strong retail centers, percentage rent can meaningfully enhance NOI and asset value. Understanding this concept is essential when underwriting shopping centers, outlet malls, and high-footfall retail properties. #CommercialRealEstate #CRE #RetailRealEstate #RealEstateFinance #Leasing #CREGames

Retail landlords didn’t win the e-commerce battle by replacing retail. They replaced it with services. Service tenants now drive over 50% of leasing, up from ~40% fifteen years ago. This isn’t random. The US wellness market alone hit $2.1T, with fitness tenants growing from 20% to ~30% of service leases. That demand is reshaping the box. Backfilling a 40,000 SF space with multiple service users can push rents ~20% higher, but introduces higher TI, shorter terms, and more rollover risk. NOI may go up, but durability is less certain. Leasing strategy is shifting from “highest rent” to “most consistent traffic.” Fitness, medical, and beauty tenants now anchor co-tenancy through frequency, not credit. Retail is becoming an operating business again, not just a lease business. Are you underwriting your centers like bond portfolios or operating platforms? (Source: WSJ)

Traffic alone does not tell you whether a site or a center will actually perform. That's where research comes into play. Owners and retailers still need deeper analysis of trade areas, competition and category performance before making high stakes leasing or investment decisions. Surface level metrics can point you in a direction. They do not replace disciplined, real world, boots-on-the-ground evaluation. Worth a quick read for anyone active in retail real estate. https://ow.ly/m3UR50YuWnE #RetailRealEstate #ShoppingCenters #SiteSelection #CREResearch #LeasingStrategy

The retail landscape is shifting fast. 🏬➡️💆♀️ Service-based tenants (think fitness, wellness, and personal care) are now dominating retail leasing, reshaping how landlords think about space, foot traffic, and long-term value. What does this mean for investors, developers, and brokers? 👉 Dive into the article to see where retail is heading next.   https://lnkd.in/d-i8BAkd

Shopping centers are no longer closed systems. A growing share of value is captured outside their boundaries. In Mexico’s retail market, parking areas can represent 30% to 43% of gross leasable area in assets above 4,000 sqm. This space is increasingly being activated to capture consumer flow before entry, reshaping leasing and value capture. For investors, this reveals a disconnect between rental income and the total value generated, requiring a broader view of asset performance and pricing. For executives, it underscores the importance of integrating perimeter retail formats that respond to vehicular flow, immediacy, and changing consumption patterns. Retail real estate is evolving into a distributed system where flow extends beyond the asset and income does not fully follow it. Read the full analysis. #SiiLA #SiiLAMarketAnalytics #SiiLAREsource #RetailRealEstate #ShoppingCenters #Leasing #Mexico #Investment

The 2026 Retail Forecast: Not Too Different from 2025 J. Wickham Zimmerman The pandemic’s aftermath saw yet another prediction of retail’s demise. But fast-forwarding half a decade, and retail has been a robust commercial real estate asset class. Despite the current K-shaped economy, shopping cutbacks from lower-income households and uncertain consumer sentiment, experts told Connect CRE that the sector is entering 2026 in decent […] Gillian Executive Search recruiters in construction management, real estate development, architecture

The 2026 Retail Forecast: Not Too Different from 2025 J. Wickham Zimmerman The pandemic’s aftermath saw yet another prediction of retail’s demise. But fast-forwarding half a decade, and retail has been a robust commercial real estate asset class. Despite the current K-shaped economy, shopping cutbacks from lower-income households and uncertain consumer sentiment, experts told Connect CRE that the sector is entering 2026 in decent […] Gillian Executive Search recruiters in construction management, real estate development, architecture