The International Council of Shopping Centers (ICSC) event in Las Vegas, a pivotal annual gathering for the retail industry, drew in tens of thousands of professionals from retailers, developers, brokers, tech companies, and more. Over three days of sessions and networking, a key discussion topic was on permitting. This vital yet complex process has posed significant challenges for landlords and tenants, impacting everything from financial planning to project timelines.
In the retail sector, particularly in the case of QSR and FCRs, where timing is of the essence, both landlords and tenants are in a race against time to finalize leases and start operations. Landlords are eager to begin collecting rent, while tenants are keen to secure their space and avoid the burden of dead rent. The narrow window for permit approval can be a decisive factor in a project's success or failure.
With retailers working to rapidly expand and gain a foothold in a market with extremely low vacancy, getting permitting right is mission critical, but it isn’t easy. Permitting is inherently local, with new processes and requirements for every jurisdiction, making it a significant variable for retailers rushing to expand.
The high cost of capital in today's market exacerbates the issues around permitting. Landlords must begin leases as soon as possible to pull forward their net operating income (NOI) and justify their investments.
The cost of capital has also made deal negotiations even more difficult. Retail vacancy rates are at historic lows, allowing landlords to call more shots and push retailers during negotiations. According to Natalie Pebbles, Director of Real Estate for Jersey Mike’s, “Deals are now taking four months longer compared to a year ago." Retailers and restaurants must find ways to operate on the margins and find savings, both in time and money, anywhere they can, and improving the permitting process might just be the low-hanging fruit they need.
The challenges posed by permitting are causing significant changes in lease deal economics, with landlords going to great lengths to avoid tenant improvement allowances, instead preferring rent abatements. Julie Fox, the SVP of Leading and Development at Ashkenazy Acquisitions, addressed this issue during the Dealmaking Masterclass: Creative Leasing Approaches panel. “A lot tenants would prefer that we do the work, but as landlords, if we have to finish out a vanilla box, that's eating into time before I can even deliver the space to a tenant and before they can even start construction,” said Fox.
The discussions at ICSC highlighted how critical efficient permitting processes are for the retail sector. Delays and uncertainties in permitting can have a domino effect on the entire development timeline. For instance, extended approval times can push back store openings, leading to lost revenue opportunities and increased costs. This is especially pertinent in today’s fast-paced retail environment where speed to market can be a decisive factor in a retailer’s success (or downfall).
The current retail environment was on full display at ICSC Las Vegas, underscoring the need for more streamlined and predictable permitting processes to support the retail sector's growth.
At Pulley, we’re working with the nation’s leading retailers on projects coast to coast and have found that the best permitting outcomes happen when:
Get the doors open faster with Pulley’s all-in-one permitting solution. In the meantime, read how Pulley helped JLL create transparency and accountability across their permitting process.