Use restrictions—once rigidly dictated by anchor tenants—are undergoing significant transformations leading to new opportunities for retailers and landlords. Historically, retailers wielded considerable influence, often securing exclusivity clauses to shield themselves from direct competition and maintaining shopping centers as strictly retail-focused zones. However, both landlords and tenants are reassessing the utility and flexibility of these restrictions with an increase of e-commerce and a shrinking pool of available retail space. As Forbes reported “retail vacancy rates across the U.S. was at 4.6%, the lowest level recorded by the CoStar group since they began tracking it in 2007.” As landlords strive to develop engaging destinations and retailers adapt to new market realities, the negotiation and redefinition of use restrictions has brought new challenges and opportunities to the discussion.

Use Restrictions are Evolving

Although anchor tenants still hold substantial sway when it comes to dictating use restrictions for shopping centers, retailers’ leverage has eroded in recent years. Historically, retailers would require exclusivity on their particular use, for example, a shoe store would require a shopping center owner not to rent to another shoe store to avoid such close competition. Many retailers have also sought to maintain shopping centers as places strictly focused on retail experiences, eschewing the idea of mixed use. With less retail space to go around, and the Internet as a fierce competitor, landlords and tenants find themselves at the negotiating table trying to drill down into what use restrictions actually provide the most protection to the retailer’s investment while allowing the shopping center to be a vibrant destination.

Landlords Strive to Create an Experience for Shoppers

Even though retailers may have historically sought more homogenous shopping centers, that idea does not currently reflect what consumers want, and thus landlords have worked to create more dynamic brick and mortar destinations. Shopping centers are now to communities what main streets once were. They operate as hubs for cities and towns and often include everything from restaurants to dance studios, specialty retail stores, pharmacies, medical centers, and stylish apartments. Creating shopping centers with diverse occupants and uses creates more incentives for consumers to visit the property and stay for a while increasing its importance as a destination.

Compromise is Key

Compromise has been a large part of any successful shopping center as the needs of all constituents shift. Landlords and retailers have to come together to negotiate new leases and identify what exact restrictions are necessary to create competitive and successful shopping centers. Examples of this kind of negotiation include coming up with a traffic plan and parking that mitigates congestion concerns of shops located near a gym that experiences periods of high volume or not placing an aromatic fire-oven pizza restaurant directly next to a yoga studio trying to create a Zen ambiance for patrons.

With so many variables at play, retailers and landlords need to carefully consider what kinds of covenants and restrictions they accept when it comes to leases. Stores are being used not only as places to shop in-person, but also as fulfillment centers for online orders. This evolution affects everything from use restrictions to rent calculations.