Tenant Representation in Tight Markets

For over two decades, I’ve represented retailers and restaurants in Nashville and Middle Tennessee. While each company is unique, when we go from big picture (the markets tenants consider) to boots-on-the-ground (how tenants respond), it’s easy to put together a great list of things we as brokers can and should do to represent our clients well.

Tenant Reactions to Tennessee

When we explore the kinds of markets a tenant considers, there are three primary classifications we apply:

1. Some markets are action markets. Veni, vidi, vici. You come, you see, you conquer.
2. Some markets are off the table. No way, no how.
3. Some markets are patience markets. You have to wait for the right opportunity – and it may take years.

Nashville and Middle Tennessee are patience markets, characterized by low vacancy rates and scarcity of new product, and we see tenants are reacting in some pretty interesting ways.

• Modify footprint. Tenants may try to fit in smaller space or larger space to be in the market. This is challenging as their sales volume has to be the same even if the footprint is totally wrong.
• Blame the broker. Though their angst is likely misplaced, we see this tactic play out in press announcements as tenants move from broker to broker within a marketplace. They tour the same markets and sites with the new broker as they did with the last broker and expect different results.
• Exit the market – strategically. There are other markets across the country, or even in other areas of Tennessee, that are easier to enter and tenants can temporarily or long-term change their focus to elsewhere.
• Stall expansion. Some tenants are able to open a first location but cannot find additional sites. If the market has been divided by a franchisor, this is particularly frustrating to franchisees who discover that the first location is situated in the exact spot to cannibalize or be cannibalized by future locations.
• Exit the market – literally. Closures can happen when a single location opens versus a multi-store rollout, and tenants can’t achieve market penetration. Franchisees in particular need to scale with multiple locations to be successful.

What a Broker Can Do

Brokers are in a unique position of influence to accurately set expectations for their tenants who are exploring tight markets. When all is well and deals are progressing easily within a market, this isn’t as necessary and falls out of normalized practice. In a patience market, however, it is critical.

• Be modest with what you tell clients, and honest about the challenges they will face. This is the time to be realistic rather than optimistic.
• Listen to and address tenant concerns. Tenants are asking “how is hiring?”, and that is the right question for them to ask here in Nashville as we are waiting for generation alpha to age into the workforce over the next couple of years to revitalize our workforce. As a broker, you should encourage tough questions like this and answer them accurately.
• Educate your client on the geographic marketplace, as they may need to be in a position to make decisions quickly.
• It’s still a landlord’s market. Assemble the materials that best position your client in conversations with landlords. It’s a beauty contest, and you should be prepared to compete.
• Be upfront with your clients about the financial investment they will need to make in their space and their rental rates, and what flexibility (or not) they will have in the negotiation.
• Prepare for the negotiation. Identify creative deal structures that can aid the landlord in making your client their ultimate selection.
• Stay involved in the local business community and the real estate industry. Leverage relationships to ensure you are aware of opportunities that can arise and are knowledgeable of timeframes and pricing.