Heads up, founders: national median retail rent is projected to hit $26.40/SF NNN in 2026, marking a significant 14% jump from $23.10/SF just two years prior in 2024. If you're eyeing a physical storefront for your business, understanding these cost dynamics isn't just good practice, it's absolutely critical for your long-term financial health.
The Evolving Retail Landscape
Retail real estate is a beast of its own. Unlike office or industrial, it's heavily influenced by consumer behavior, foot traffic, and even the type of product or service you offer. The recent surge in rents, particularly from 2024 to 2026, is largely fueled by a strong demand for "experiential retail" and robust consumer spending.
We typically see three primary retail formats dominating the market, each with its own cost profile:
- High-traffic urban storefronts: These command the highest rents, often found in bustling city centers.
- Shopping center anchored spaces: Costs here can vary widely depending on the center's class and tenant mix.
- Strip centers: These generally offer the lowest base rents, serving local neighborhoods.
Beyond base rent, be prepared to factor in percentage rent for shopping centers and high-volume locations. Also, tenant improvement (TI) allowances are crucial. Expect anywhere from $30 to $70 per square foot for second-generation spaces, and $80 to $150 per square foot for brand new, first-generation white-box units.
Retail Rent Benchmarks by Format (Q1 2026)
The cost of retail space isn't uniform. It's a spectrum, heavily influenced by location, foot traffic, and the type of retail environment. Here's a quick look at typical annual NNN (triple net) rates per square foot:
| Format | Typical $/SF/yr NNN | Notes |
|---|---|---|
| Urban storefront (Tier 1 metros) | $80 to $250 | Think NYC SoHo, SF Union Square, Miami Lincoln Road |
| Urban storefront (Tier 2 metros) | $40 to $90 | Cities like Atlanta, Charlotte, Nashville |
| Anchored shopping center (in-line) | $20 to $50 | Power centers, lifestyle centers |
| Strip center (small shop) | $15 to $35 | Suburban, neighborhood-serving locations |
| Mall (in-line) | $25 to $80 | Class A enclosed malls |
| Mall (anchor) | $10 to $30 | Large department store positions |
| Outlet center | $30 to $70 | Varies by brand mix and location |
Across these diverse formats, JLL's 2026 Retail Outlook reports the national median retail rent at $26.40/SF NNN. This figure provides a baseline, but your specific market and property type will dictate your actual costs.
Understanding Percentage Rent in Retail Leases
Many retail leases, especially within shopping centers and high-volume locations, include percentage rent. This is an additional payment on top of your base rent, calculated as a percentage of your gross sales exceeding a predefined "breakpoint."
Here are some typical percentages:
- Apparel retail: Generally 5% to 7% of gross sales above the breakpoint.
- Restaurants: Typically 5% to 7% of gross sales, though some quick-service restaurants (QSRs) might see 6% to 8%.
- Service retail (e.g., hair salons, beauty services): Commonly 6% to 8%.
- Specialty/destination retail: Highly variable, depends on the niche.
The "natural breakpoint" is key here. It's calculated by dividing your annual base rent by the percentage rate. For example, if your annual base rent is $84,000 and the percentage rate is 6%, your natural breakpoint would be ($84,000 / 0.06) = $1,400,000. You only start paying percentage rent on sales that exceed this $1.4 million threshold.
Always push for a natural breakpoint in your negotiations. Landlords sometimes try to insert "artificial breakpoints" that are lower than your natural one. These are essentially stealth rent increases, requiring you to pay percentage rent sooner than your sales volume would naturally dictate. Watch out for them.
Tenant Improvement (TI) Allowance for Retail (Q1 2026)
Tenant Improvement (TI) allowance is the money a landlord provides to help you build out or customize your space. It's a critical component of your overall lease cost. However, it rarely covers the entire buildout, meaning you'll likely have out-of-pocket expenses.
Here are typical TI allowances and potential out-of-pocket costs:
| Space type | TI allowance ($/SF) | Buildout overage (out of pocket) |
|---|---|---|
| Second-generation | $30 to $70 | $40 to $120 |
| First-generation white-box | $80 to $150 | $50 to $150 |
| Restaurant (second-gen) | $80 to $180 | $100 to $300 |
| Restaurant (first-gen) | $100 to $200 | $150 to $400 |
Restaurants often receive the highest TI allowances. Why? Because their buildouts are significantly more complex and expensive. Think about the specialized infrastructure required: grease traps ($15,000 to $40,000), commercial hoods ($25,000 to $80,000), and gas line installations ($10,000 to $50,000). These aren't cheap.
Before you even sign a Letter of Intent (LOI), meticulously model your total buildout costs and estimate your potential overage above the TI cap. Don't be caught off guard. For instance, if your TI is $70/SF and your total buildout is $150/SF, your out-of-pocket cost is ($150 - $70) = $80/SF.
Retail-Specific Lease Structures You Must Know
Retail leases come with unique clauses designed to protect both tenant and landlord. Understanding these is vital for founders.
Co-tenancy Clause
This clause is your safety net, especially in shopping centers. It grants you the right to either reduce your rent or terminate your lease if an anchor tenant leaves, or if the shopping center's occupancy drops below a certain threshold. It's standard in lifestyle centers and absolutely critical in any shopping center where anchor stores drive traffic. We saw this in action from 2024 to 2025 when closures of major department stores, like Saks, Lord & Taylor, and JC Penney, triggered these very tenant-side termination rights. Don't sign without it.
Exclusivity / Use Clause
This protects your business from direct competition within the same development. The landlord agrees not to lease space to a directly competing tenant within the shopping center. This is vital for restaurants and specialty retail. The definition here matters immensely. An "Italian restaurant" clause might prevent another Italian restaurant from opening, but it might not exclude a pizza chain. Negotiate the exact scope of "competing business" very carefully.
Radius Restriction
A radius restriction is where you, as the tenant, agree not to open another location within a specified distance, typically 2 to 5 miles, of the shopping center. This is common in restaurant and specialty retail leases, designed to prevent you from self-cannibalizing your own sales. If you have aggressive expansion plans, push back on this clause or negotiate a smaller radius.
Operating Covenant
This clause commits you to continuously operate your business during specified hours. Landlords include this because a "dark store" hurts the overall appeal and traffic of a shopping center. While landlords will resist, try to negotiate flexibility on your operating hours, especially for restaurants where a lunch-only or dinner-only model might be your strategy. Some lifestyle centers may accept 2 to 4 hour daily windows.
How to Evaluate Retail Rent Like a Pro
Before you commit to a Letter of Intent, arm yourself with data. Demand these three benchmarks from the landlord:
- Comparable Deal Data: Request the per-square-foot rent and full concession structure (free rent, TI allowance, percentage rent breakpoint) for the last three retail deals signed in that specific center. This gives you real, recent data points.
- Center Occupancy and Tenant Mix: A high occupancy rate coupled with a strong mix of co-tenants indicates a healthy, thriving center, justifying higher rents. If occupancy is below 80%, that's a red flag, signaling a struggling center that might warrant lower rates or more concessions.
- Historical Sales per Square Foot: If available, ask for historical sales per square foot data for comparable tenants in the center. Landlords don't always share this, but it's the gold standard benchmark for negotiating your percentage rent breakpoint.
Frequently Asked Questions for Retail Founders
Do retail leases typically include percentage rent?
Yes, especially in shopping centers and high-traffic retail hubs. You'll pay base rent plus a percentage, usually 5% to 7% for apparel or 3% to 5% for restaurants, on gross sales above a specific breakpoint. Smaller strip centers and standalone retail often don't have this clause.
What's a typical retail TI allowance?
For second-generation space, expect $30 to $70 per square foot. For first-generation (white-box) space, it's usually $80 to $150 per square foot. Restaurants receive higher TIs due to specialized equipment like grease traps, hoods, and gas lines.
How much should I budget for retail buildout beyond the TI allowance?
Typical out-of-pocket overage for general retail is $40 to $120 per square foot. If you're opening a restaurant, budget an additional $30 to $80 per square foot for kitchen equipment that landlords typically don't cover.
What exactly is a co-tenancy clause?
A co-tenancy clause allows you to reduce your rent or even terminate your lease if a major anchor tenant vacates, or if the shopping center's overall occupancy falls below a predetermined level. This clause became particularly relevant from 2024 to 2025 with the closures of large department stores like Saks, JC Penney, and Sears, triggering tenant rights.
How do exclusivity clauses function?
The landlord agrees not to lease space to a direct competitor within the same shopping center. The precision of the definition is paramount: "Italian restaurant" might exclude another Italian restaurant, but it might not stop a pizza chain from moving in. Negotiate this definition very carefully.
What's a common radius restriction?
A typical radius restriction is 2 to 5 miles around the shopping center. You agree not to open another location within this specified area. These are common in restaurant and specialty retail leases. If you have concrete expansion plans, be prepared to negotiate this point.
Has retail rent increased in 2026?
Yes, national retail rents have increased by approximately 14% from 2024 to 2026, according to JLL Retail Outlook. The national median retail PSF rent is $26.40 NNN in 2026, up from $23.10 NNN in 2024. This rise is attributed to strong consumer spending, the demand for experiential retail, and limited new construction.
Should I negotiate an operating covenant?
Absolutely. Push for flexibility on your operating hours, particularly if your business model, such as a restaurant, thrives on specific meal times. While landlords prefer continuous operation, it is possible to negotiate for 2 to 4 hour daily windows, especially in lifestyle centers.
Full data + interactive calculator: commercialleasecost.com
Sources
- JLL Retail Outlook, accessed 2026-05-02, https://www.jll.com/en/insights/market-perspectives/retail
- CBRE Restaurant Trends 2026, accessed 2026-05-02, https://www.cbre.com/insights/articles/restaurants-positioned-for-growth
- LoopNet TI Allowance Guide, accessed 2026-05-02, https://www.loopnet.com/cre-explained/finance/tenant-improvement-allowance-tia/
- Bhumi Calculator 2026 Retail Buildout Costs, accessed 2026-05-02, https://bhumicalculator.com/countries/united-states/tenant-improvement-costs-per-square-foot
- ICSC State of the Industry, accessed 2026-05-02, https://www.icsc.com/news-and-views/research
Please note: This content is not financial or legal advice. Estimates are based on publicly available market data and broker reports. Commercial real estate is highly local and deal-specific. Always consult a licensed commercial real estate broker and a real estate attorney before signing any lease agreement.
