Across the country, a shift is underway in the commercial real estate landscape. Once-unshakable national retail chains are shuttering stores, leaving behind empty spaces in malls and shopping centers. For years, these prime locations were out of reach for smaller operators. Now, rising vacancy rates and softened demand are changing the rules of the game.
According to a recent Cushman & Wakefield report, the national vacancy rate in shopping centers rose to 5.8% in the second quarter of 2025, up from earlier this year and 50 basis points higher than a year ago. This increase is driven largely by chain store bankruptcies and abandoned leases. While rising vacancies may seem like a warning sign, they are also opening doors. Independent retailers, service providers, and local entrepreneurs are finding opportunities in places that were once too expensive or inaccessible.
For landlords and tenants alike, this evolving retail environment presents both promise and risk. The key is knowing how to approach these deals strategically.
Opportunities for Small Businesses
For many small businesses, the current retail downturn is creating unprecedented access. CNBC recently profiled Kimberly Blair, a wellness practitioner in San Diego, who secured a prime shopping center location with not only favorable rent but also a flexible lease term — something rarely offered just a few years ago.
Stories like this are increasingly common. From fitness studios to medical offices to boutique food retailers, entrepreneurs are moving into spaces vacated by national brands. The benefits are clear:
- More affordable rent: Asking rents are no longer climbing at the 4% annual clip seen immediately after the pandemic. Instead, increases are closer to 2%, creating breathing room for small operators.
- Lease flexibility: Shorter terms, rent-free periods, and tenant improvement allowances are on the table, giving small businesses room to test locations without overextending.
- Visibility and credibility: Taking over space previously vetted for site selection, foot traffic, and accessibility provides instant validation.
For small business tenants, the timing could be ideal to gain a competitive advantage with a physical presence.
The Landlord’s Calculus
For property owners, rising vacancies create pressure to adapt. Filling empty storefronts is about more than just recovering lost rent — it’s about maintaining vibrancy and keeping properties attractive to visitors. As one expert told CNBC, “empty space sends a message that a place is struggling.”
Landlords are increasingly weighing trade-offs:
- Credit tenants vs. occupancy: Historically, landlords sought “credit tenants”—established chains capable of paying significant rent upfront. But as those tenants grow scarce, many are considering smaller, local operators to keep centers active.
- Short-term vs. long-term leases: Shorter, flexible agreements keep space occupied but add turnover risk. Landlords must decide whether to prioritize stability or adaptability.
- Tenant mix considerations: A growing number of landlords are looking beyond traditional retail to service-based businesses, medical uses, and community-oriented tenants. These occupants may not drive the same sales volume but can increase foot traffic and enhance a center’s relevance.
The challenge, of course, is that small business tenants come with higher default risk. More than 50% of small businesses fail within six years. Landlords must structure deals to balance occupancy goals with financial protection.
Two trends are currently working in landlords’ favor: (1) large, recently vacated spaces are attracting some national retailers like Grocery Outlet, and (2) new retail construction is virtually non-existent, which will keep supply tight for the foreseeable future.
Legal Considerations in Today’s Market
Whether representing landlords or tenants, attorneys play a critical role in structuring deals that minimize risk and maximize opportunity. Several legal issues stand out:
- Lease Flexibility vs. Security
- Tenants may seek short-term or experimental agreements, but landlords should negotiate protections such as personal guarantees, higher security deposits, or revenue-sharing clauses to offset default risk.
- Renewal options and termination rights should be clearly spelled out to avoid disputes.
- Use and Exclusivity Clauses
- With service-based tenants filling spaces, landlords need to revisit use provisions. For example, permitting wellness services, fitness studios, or hybrid retail-service concepts may require adjustments to existing co-tenancy or exclusivity clauses as well as required parking ratios.
- Tenant Improvement and Build-Out
- Small business tenants often rely on landlord allowances for fit-outs. Agreements should detail responsibilities for design, construction, compliance with code, and delivery timelines.
- Bankruptcy and Lease Rejection Risk
- The recent wave of retail bankruptcies underscores the importance of carefully drafting remedies in the event of tenant insolvency. Landlords should preserve rights to claim damages, while tenants should ensure protections if a landlord sells or restructures the property.
- Adaptive Reuse and Zoning Issues
- Repurposing larger spaces for non-traditional uses, such as medical offices or community hubs, may require zoning approvals or variances. Landlords and tenants alike should understand the local regulatory landscape before signing a lease.
Geographic Variation Matters
It’s important to note that opportunities are not evenly distributed. In some high-demand markets, such as New York City, smaller tenants remain squeezed out by strong demand for warehouse and micro-distribution space. In other areas, particularly mid-sized cities and inner-ring suburbs, pricing has reset, creating more favorable entry points. This means landlords and tenants alike must evaluate deals with a careful eye toward local conditions. A deal that looks favorable in one community may not be replicable elsewhere.
Looking Ahead
The retail market is in the midst of recalibration. As Cushman & Wakefield noted, “so far this year we are seeing more store closures, and that will continue to open up opportunities for smaller businesses wanting to move in” (Cushman & Wakefield MarketBeat Report).
For landlords, the message is clear: flexibility and creativity are essential. For tenants, the current market presents a rare chance to secure space that may have been out of reach just a few years ago.
Practical Takeaways
- For Landlords:
- Consider interim leases, pop-up programs, or revenue-sharing models to reduce vacancies.
- Use stronger credit protections when working with small business tenants.
- Explore adaptive reuse to diversify tenant mix and attract foot traffic.
- For Tenants:
- Leverage the current environment to negotiate rent concessions, tenant improvement allowances, and shorter terms.
- Assess long-term sustainability—don’t overcommit just because space is available.
- Seek legal guidance to ensure lease terms balance opportunity with protection.
Conclusion
The decline of national chain retailers has left gaps in the retail real estate market, but those gaps are also canvases for reinvention. For landlords, this is a moment to rethink tenant strategy, prioritize occupancy, and use legal tools to mitigate risk. For tenants, particularly small businesses, this is an unprecedented window to gain visibility and market presence.
At its core, the current retail transition is about balance: balancing flexibility with security, opportunity with risk, and short-term occupancy with long-term sustainability. With thoughtful structuring and legal guidance, both landlords and tenants can turn today’s vacancies into tomorrow’s success stories.
Contact
Whether you’re a landlord adapting to new market realities or a small business seeking your first retail space, the right strategy can make all the difference. For guidance, contact KJK Real Estate attorneys Matthew Viola (MTV@kjk.com) and Steve Marrer (SAM@kjk.com).