Opening a retail store is a major milestone—and a major investment. The right space can expand your brand, drive long-term customer loyalty, and act as a powerful acquisition engine. 

But the retail leasing process is notoriously complex. Between rapidly shifting market conditions, opaque lease structures, and tight timelines, many retailers sign deals they later regret.

This guide breaks down what you need to know before negotiating a lease, so you understand the current market, choose locations strategically, structure your deal with confidence, and avoid costly mistakes. 

Whether you’re opening your first brick-and-mortar store or expanding into new markets, you’ll learn how to navigate the retail leasing process from preparation to signing, and how to spot the red flags that experienced retailers watch for.

The state of physical retail in 2026

Physical retail isn’t disappearing in today’s commerce landscape—but it is getting more competitive. Retail space availability is historically tight, new construction remains limited, and consumer behavior continues shifting toward omnichannel retail. Understanding these dynamics helps you move through the leasing process with clearer expectations and stronger negotiating leverage.

High demand, low vacancies

Retail real estate is tighter than many business owners realize.

• CBRE reports that the US is underretailed by roughly 200 million square feet—about 5% of total stock. This shortage stems from years of limited new construction alongside steady consumer demand for physical retail.
• CBRE’s latest US Retail Outlook expects availability to stay historically tight with little new space becoming available, with rents rising as a result.

For retailers—especially small and medium-sized businesses—this means fewer high-quality spaces and more competition, particularly in desirable trade areas. Strong locations tend to lease quickly, and landlords have more leverage than they did in years past.

Shopper behavior is omnichannel, not online-only

Physical retail continues to play a critical role in how consumers browse, buy, and pick up orders:

• ICSC’s 2024 holiday survey found that 84% of shoppers planned to visit stores in person or pick up online orders in-store during the final shopping weeks of the season.
• The National Retail Federation reported that 126 million consumers shopped in-store over Thanksgiving weekend in 2024, an increase from the previous year. Online-only shoppers declined during that same five-day period.

Shoppers now expect the best of both worlds—online convenience with in-store immediacy. Many retailers use stores as discovery centers, fulfillment hubs, and brand experience touchpoints all in one.

What this means for leasing small and medium-sized business retail space

A constrained but healthy retail market creates both challenges and opportunities:

Challenges:

• Higher base rents in popular corridors.
• Limited tenant improvement (TI) packages without strong negotiation.
• Faster decision timelines due to low vacancy.

Opportunities:

• Landlords highly value stable, traffic-driving independent retailers.
• Underretailed neighborhoods often seek unique concepts to fill market gaps.
• Strong business plans can outcompete larger brands for prime spaces.

To navigate this environment effectively, you need the right advisors, a clear financial model, and the ability to act decisively when a space fits your strategy.

Should you work with a commercial real estate broker?

For most first-time or expanding retailers, working with a commercial real estate broker pays off. In tight markets where inventory moves quickly and every lease term matters, an experienced broker brings the market knowledge, relationships, and negotiation skills that independent retailers rarely have on their own.

Most commercial leases involve a commission of about 4% to 6% of total rent, typically paid by the landlord. While this cost is effectively built into the deal, tenant representation usually costs you nothing out of pocket—and can save you far more through stronger terms and avoided missteps.

When to work with a broker

Consider hiring a broker in the following instances:

• It’s your first physical store. Retail leases include complex structures and requirements—particularly in multi-tenant centers with common area maintenance (CAM) charges, co-tenancy clauses, and operational standards.
• You have limited time to manage location scouting, tour scheduling, permitting coordination, and back-and-forth negotiations.
• You’re competing for space in a market with particularly limited inventory, where desirable locations might even get leased before hitting public listing platforms.

When you may not need a broker

On the other hand, in some situations you may be better off negotiating directly:

• When you’re leasing space for a very small or temporary pop-up shop.
• When you have an established relationship with the landlord.
• When you already employ an experienced retail real estate attorney.

Still, many experienced retailers use brokers for their local intelligence alone.

How to choose the right broker

Vet candidates across three areas of expertise:

• Geography. Do they specialize in your specific trade area or neighborhood?
• Asset type. Street retail, lifestyle centers, strip centers, enclosed malls, and big-box anchored centers each require different expertise.
• Tenant type and deal size. Ask how many similar-sized retail leases they’ve completed in the past 12 to 24 months.

During interviews with brokers, ask qualifying questions like:

• Do you primarily represent tenants or landlords?
• How do you handle commission splits if both sides have representation?
• Which landlords in this market are flexible versus strict?
• Can you share recent comparable deals you’ve landed?

Request references from similar-sized retailers and actually call them. Choosing the right broker can shape your entire leasing outcome—and in many cases, determine whether you secure the space at all.

Buying vs. leasing retail space

While less common, there are opportunities to purchase a commercial or retail building. However, most small and medium-sized retailers choose to lease rather than buy, especially for early locations. Leasing reduces your upfront investment, increases flexibility, and lets you adapt to market trends. Buying can make sense later—but only after proving your concept and establishing long-term confidence in a specific market.

Here’s how the two options compare:

Making a strategic decision

Choose leasing when: 

• Opening your first store
• Testing new markets
• Preserving capital for hiring, marketing, or inventory
• Prioritizing speed to open over long-term real estate control

Many successful retailers lease first, proving their concept before considering if they want to invest in ownership—whether they’re opening specialty furniture showrooms or boutique clothing stores.

Consider buying when: 

• You have multiple years of proven success
• You’ve identified a flagship location
• You have capital or financing that won’t constrain operations

Some merchants purchase properties in appreciating areas as investment plays beyond their core retail business. Others buy to control their entire building, seeing the value in earning additional rental income from other tenants.

How does retail leasing work? A step-by-step guide

Retail leasing moves through five phases. Each builds on the next, and preparing ahead of time can help reduce mistakes later in the process.

1. Prepare your business plan and budget

Landlords evaluate you as much as you evaluate them. Having a business plan shows financial stability, operational readiness, and a concept that fits the center’s merchandising strategy.

Start by answering foundational questions:

• What goals will a physical store accomplish that your current channels can’t?
• Who is your target customer, and where do they shop?
• What will your store sell, and what experience will you offer?
• What are your projected expenses (staffing, POS, inventory, utilities)?
• What are your realistic sales projections?
• What are your build-out requirements and estimated costs?
• What is your ideal timeline to find, lease, build out, and open?
• How do you want your store to look?
• How will you market your store and drive traffic to it?

Budgeting tip: Total occupancy cost should remain sustainable relative to projected sales. Many retailers aim to keep total occupancy costs—including base rent, common area maintenance, taxes, and insurance—in the low double digits relative to sales, though benchmarks vary significantly by category.

If you need to modify or build out the space before opening, keep in mind:

• Typical retail build-out ranges can span $50 to $100 per square foot for simple spaces and $200 or more for restaurants, salons, or specialized concepts.
• Include architectural drawings, permits, construction, fixtures, and signage in your budget.
• Build a buffer for delays in permitting and construction.

2. Develop a location strategy

Your retail location will matter more than most other decisions. Define your criteria upfront so you can evaluate spaces consistently and choose the optimal retail storefront. 

Here are the key elements to consider:

• Customer proximity. Analyze where your customers live and shop to meet them where they are. Use your ecommerce order history, delivery clusters, and customer surveys to make this decision.
• Retail environment. Evaluate the specific trade-offs of each environment type. Malls offer high traffic but come with higher rents and strict rules, while street retail provides authenticity and visibility but requires heavy marketing.
• Co-tenancy. Identify brands that complement your concept—not competitors. Wellness brands thrive near yoga studios, juice bars, and athletic apparel stores. Home goods retailers benefit from proximity to furniture stores and interior designers.
• Operational requirements. Determine your non-negotiable needs before falling in love with a space. Confirm a location supports your mechanical, electrical, and plumbing requirements, and also offers logistical features like storage, parking access, and designated areas for loading and deliveries.

Research zoning restrictions early to avoid pursuing properties that can’t legally support your business type.

3. Source and tour locations

Don’t just fall in love with finishes—evaluate whether the space fits your financial model and customer strategy.

Source locations via:

• Online listing platforms like CoStar, LoopNet, and other commercial real estate marketplaces. Set up search alerts for spaces matching your criteria, but recognize that premium properties may lease before appearing online.
• Networking. Other local business owners, retail associations, property management companies, and vendors might know about upcoming vacancies. Join local retail associations, business communities, or merchant groups and keep an eye on social media.
• On-the-ground scouting. Drive trade areas and noting For Lease signs; many property owners still rely on building signage rather than online listings, particularly for smaller spaces.
• Shopping center websites list available suites directly, and leasing representatives who control multiple properties can suggest alternatives if their first suggestion doesn’t fit.

When touring properties, bring key stakeholders—contractor, operations lead, or designer—to evaluate build-out needs and workflows. Tour at different days and times to assess:

• Traffic patterns
• Foot traffic
• Parking availability
• Loading
• Signage opportunities
• Sightlines and visibility
• Neighboring tenants
• Customer demographics

Document each space thoroughly with photos, measurements, and notes about specific features or concerns. Create a standardized evaluation rubric scoring each property on traffic, visibility, co-tenancy, accessibility, overall condition, and lease economics.

4. Negotiate a letter of intent (LOI)

The LOI is where the real negotiation happens—before attorneys draft a long lease. While non-binding, treat the LOI as the decisive stage for securing favorable terms.

Everything in the LOI should reflect your deal priorities before the lengthy lease draft begins. It should cover basic terms of the lease, such as rent, length of term, etc. We’ll provide an in-depth lease checklist below. 

5. Review and sign the lease

Once the landlord drafts the lease, never sign without retail-specific legal review. Your attorney should review every provision, not just major economic terms, as seemingly small clauses can create large operational or financial obligations.

Confirm that the lease aligns with:

• Your financial model: base rent, CAM, taxes, insurance, increases.
• Your operating needs: hours, signage, deliveries, required opening date.
• Your contingency plans: termination rights, co-tenancy remedies, assignment rights.

Next, you’ll need to understand the lease terms more deeply.

Deconstructing the retail lease agreement

Retail leases are long, complex documents—often 50 to 100 pages—and every major term affects your operations and profitability. This section breaks down the elements you’ll encounter, how they impact your business, and where to negotiate.

Key financial terms

• Length of term. How long you’re locked into the lease. Usually three to 10 years, but try to keep the initial commitment shorter (three to five years) to maintain flexibility.
• Base rent. The monthly sticker price for the space (remember, this isn’t your total bill).
• Common area maintenance (CAM). Your share of the landlord’s bills for extra property services (landscaping, security, etc.). Watch out for hidden admin fees.
• Taxes and insurance. Often passed on to you. You typically can’t negotiate the cost, but should ask how they calculate increases.
• Percentage rent. A clause where the landlord gets a cut of your sales once you hit a certain revenue number (the “breakpoint”).
• Tenant improvement allowance (TI). Free money from the landlord to help you build out your shop.
• Security deposit and guarantees. The cash you put down upfront. If you have to sign a personal guarantee, which means risking your own assets, try to get it to expire after a few years of on-time payments.
• Rent escalations. How much your rent goes up every year. It’s usually a fixed percentage (2% to 4%) or tied to inflation.
• Gross lease. One predictable monthly payment covering all costs.
• Net lease. Base rent plus select expenses.
• Triple net lease. Base rent plus CAM, taxes, and insurance.
• Marketing fees. Extra charges in malls/shopping centers for shared advertising. Make sure you know exactly what this money is actually used for.
• Utilities. You usually pay these directly, but if the landlord manages them, check that they aren’t tacking on extra “admin fees.”

Important dates and deadlines

• Delivery date. The day you actually get the keys to the space.
• Rent commencement date: The day you have to start paying. 
• Required opening date. The deadline to open your doors. If you miss this, you could get hit with penalties.
• Renewal notices. The window when you have to tell the landlord whether you’re staying in the space. Put these dates in your calendar immediately or you might lose your spot.

Operational clauses and tenant rights

• Landlord delivery. The condition the space will be in when you get it (e.g., bare concrete versus ready to paint).
• Permitted use. What you are legally allowed to sell. Keep this description broad so you don’t get in trouble for adding new products later.
• Common areas. Who takes care of areas like the hallways or parking lot. Try to make sure you aren’t paying for the landlord’s corporate overhead here.
• Repairs. Who fixes what. You want the landlord to handle the big stuff like the roof and HVAC.
• Co-tenancy. A safety net. If the big anchor store leaves or the mall becomes a ghost town, this clause lets you pay less rent or leave.
• Hours of operation. Rules on when you must be open. Make sure these match your actual staffing ability.

Contingency and exit clauses

• Early termination. Kick-out clauses that allow you to exit the lease if specific sales targets or co-tenancy conditions aren’t met.
• Personal guarantee. A legal promise holding you personally liable for the lease, often with burn-off provisions after a period of on-time payments.
• Reinstatement obligations. The requirement to return the space to its original condition upon moving out.

Common pitfalls to avoid in a retail lease

Before signing any lease, watch out for these red flags. Fixing them after the lease has been executed ranges from expensive to impossible, so it’s essential to be vigilant in your review.

Uncapped CAM or vague expense definitions

These are the most common sources of unexpected cost increases. 

Without caps, controllable expenses, management fees, administrative costs, and other soft charges can escalate dramatically. Many tenants aim to negotiate caps around 3% to 5% for controllable CAM expenses. 

During LOI negotiations, review CAM definitions carefully, and ask to exclude capital improvements, corporate overhead allocations, and other inappropriate charges that should be the landlord’s responsibilities.

Relocation clauses

Landlords may reserve the right to move your business to another suite within their property. While you may get lucky with a comparable space, you may not—your new location could have less foot traffic, reduced visibility, or a configuration that doesn’t work for your business.

Limit or eliminate relocation clauses wherever possible. Require truly equivalent spaces and ask that your landlord pays for moving costs, build-outs, and compensation for lost business.

Aggressive co-tenancy structures

Co-tenancy rules can be difficult to enforce the stricter they are. 

Occupancy thresholds based on “comparable” retailers can spark arguments about what type of business qualifies. Landlords might lease to temporary tenants or dispute calculations to avoid violations.

Ensure triggers and remedies are clear, measurable, and enforceable.

Overly broad use restrictions

Narrow permitted use definitions prevent your business from evolving over time. Negotiate use provisions that accommodate your current business and reasonable future growth.

Punitive holdover or automatic renewal terms

Holdover rent can be 150% to 200% of your standard rate. Put renewal notice dates on your calendar immediately so a simple oversight doesn’t end up costing you. Also keep an eye out for automatic renewals that can bind you to costly additional terms.

If you identify red flags in your lease, pause negotiations and have a retail-focused attorney perform a full review.

Types of retail leases and rent structures

Lease structure shapes how predictable your costs are—and how much risk you carry.

First, there are two main types of leases:

• Permanent lease. Any commitment longer than a year, usually starting at three to 10 years. Since you are staying longer, landlords often give you better deals like lower rent or more money for build-outs, and you get the stability to build a real customer base.
• Temporary lease. A short-term deal lasting less than one year These are perfect for pop-ups or seasonal concepts because they require very little investment or commitment. 

There are also different types of rent structures written into retail leases. 

• Gross lease. One simple, predictable monthly payment that covers your rent plus most expenses. The landlord handles taxes, insurance, and operating costs in this case. The rent looks higher on paper, but it’s great for new businesses that want controlled costs.
• Net lease. You pay a base rent plus pass-through costs like property taxes, insurance, maintenance, etc. This lowers the base rent, but makes budgeting harder because your monthly bill fluctuates if property taxes go up or you need a major repair. 
• Percentage-only lease. Your rent is calculated entirely based on a percentage of your sales. This is great for high-variance or seasonal businesses because it lowers your risk during slow months.

Navigating the retail leasing process

While the retail leasing process can seem overwhelming, physical stores are an effective way to acquire new customers and grow your business. 

Preparation is critical. By understanding your target market and setting a realistic budget and timeline, you can set your store up for success through retail leasing.

Remember that successful retail leasing balances opportunity with risk. The perfect space rarely exists, but good-enough spaces with favorable terms outperform perfect spaces with punitive agreements. Focus on finding a workable location with a lease agreement supporting your long-term success rather than pursuing an ideal scenario that may never materialize.