Experiential retail creates a direct tension for shopping center landlords. Tenants offering interactive, experience-driven concepts attract foot traffic and keep properties relevant. But they often pay lower rents per square foot than traditional retailers, creating a conflict with REIT profitability targets and shareholder expectations.
The question is not whether to bring experiential tenants into the mix. Consumer demand has already answered that. The question is how to structure the tenant portfolio, the lease terms, and the physical space so that experiential retail strengthens the asset rather than diluting its financial performance.
This is a governance challenge as much as a leasing one. Decisions about experiential tenants affect construction budgets (buildouts are often more complex), lease administration (terms are less standardized), and design execution (spaces need to flex). When those decisions are made in isolation, the tradeoffs compound.
Technology Infrastructure Experiential Tenants Actually Require
Experiential tenants typically need more from a space than traditional retailers. AR and VR installations require reliable high-bandwidth connectivity. Interactive digital displays need dedicated power circuits. Mobile integration platforms depend on in-building cellular coverage that many older properties lack.
For landlords, the question is whether to invest in base-building technology infrastructure that supports these requirements or to pass those costs to tenants through TI negotiations. Properties that pre-invest in connectivity, power capacity, and flexible AV infrastructure can attract higher-quality experiential tenants and negotiate stronger lease terms. Properties that do not will find themselves limited to tenants whose concepts require minimal technology, which narrows the experiential mix.
The buildout implications matter. Technology-heavy experiential spaces typically add 15 to 25 percent to construction costs compared to traditional retail buildouts, and the permitting process for interactive installations varies significantly by municipality. These realities need to inform the leasing conversation before the deal is signed, not after.
How Landlords Can Balance Experiential Tenants with REIT Profitability Targets
The tension is straightforward. Experiential tenants attract the foot traffic that keeps a property relevant. But they often generate lower rent per square foot than traditional retailers, creating a direct conflict with the financial performance expectations of publicly traded REITs.
Doug Tilson, who leads ASG’s Tenant Representation, explains:
“The real struggle for landlords is walking this fine line between bringing in the experiential retailers that consumers want, while still meeting the financial goals for their shopping centers. A lot of these locations are publicly traded REITs with profit goals and shareholder expectations they must meet.”
Making the Most of Your Mall Space
How can landlords position themselves to benefit from experiential retail? How do they attract a beneficial combination of retail offerings that keep the traffic coming? Consider these factors:
Strike a Balance
How do landlords marry the need to show profits with less lucrative experiential retail tenants?Tilson explains, “There is significant competition for space, especially in the top-tier shopping centers. So, there is a tradeoff between doing something the customer desires with the constraints of possibly lower returns,” he says. “If an experiential retailer pays less, does the landlord do it for the customer, or do they prioritize the more profitable traditional retailer? My advice: Look at your shopping center as an asset and stay relevant with your consumers. Ignore short-term quarterly earnings and focus on the long-term strategy.”
Curate Your Tenant Mix
Carefully curating the mix of tenants within a shopping center or complex is crucial. Selecting retailers that align with the experiential trend and offer unique, engaging, or interactive elements contributes to the overall appeal of the retail space, but they should not be the only priority.
“We saw this happen in many shopping centers when sit-down restaurants became popular,” says Tilson. “In a number of instances, landlords went overboard and ended up with an imbalance. They must be careful not to overdo any one type of retail. And consumers still want to shop; shopping centers still need traditional retailers. Don’t throw the baby out with the bath water. You still have to have products for consumers to buy, whether or not they have an experiential component to them.”
Embrace New Retailers, but Perform Due Diligence
Just because you may be considering bringing in more experiential retailers doesn’t mean you still shouldn’t perform due diligence. It’s important to maintain fiscal responsibility with new tenants, even if you’re providing more flexibility to the terms of the lease regarding space and scalability. Be sure to address the issue of liability, particularly as it concerns some of the more adventurous experiences.
Use the Fundamentals of Retail Real Estate Strategy
For landlords, consumer expectations may change, but the basic tenets of retail real estate investment have not. (For more, pick up Secrets of Retail Real Estate: How Successful Retailers Win by ASG founder Steve Morris). Location matters. Accessibility matters. The only thing that has really changed is the type of retailer. You’re more likely to have success with a grocery store as an anchor than a department store these days. And you may need to consider more flexible lease and space terms to attract the right kind of retailers to your space.
Embrace Agility
If the pandemic taught retailers anything, it’s that everything can change in an instant. Be agile and willing to change your strategy to suit shifting demand. Where department stores once ruled, it’s more likely your spaces will be filled with DTCs opening physical locations, medical retail, seasonal pop-ups, and experiential retailers. But this shift is an exciting one, because the changing dynamics of your location can be a draw for consumers who are looking forward to what’s next.
Design Stores for Flexibility
Flexibility is a crucial factor in designing retail spaces that attract experiential retailers. Consider allowing retailers to create dynamic and ever-changing environments by offering modular layouts, movable fixtures, and adaptable spaces that can accommodate distinct types of experiences.
Integrate Technology
Incorporating technology into retail spaces is necessary with experiential retail. From augmented reality (AR) and virtual reality (VR) elements to interactive displays and seamless online-offline integration, retail landlords should supply the infrastructure necessary to support these technologies.
Prioritize Sustainability
Embracing sustainability practices can resonate with consumers who are increasingly conscious of environmental issues. Retail landlords can encourage and support eco-friendly practices among their tenants, creating a positive and responsible image for the entire retail space.
Analyze the Data
Leveraging data analytics can help retail landlords understand consumer behavior and preferences. This information can be used to tailor experiences, optimize tenant mixes, and continually adapt the retail environment to meet changing consumer expectations.
Measure Whether Experiential Tenants Are Worth the Rent Discount
Foot traffic alone does not justify a lower rent per square foot. The metrics that matter for landlords are dwell time (how long visitors stay in the center after engaging with the experiential tenant), cross-sale lift (whether adjacent tenants see increased sales on days the experiential space is active), and repeat visit frequency.
Properties with well-positioned experiential tenants typically see measurable increases in overall center dwell time. The question for landlords is whether that increased dwell translates to enough incremental revenue across the tenant mix to offset the lower rent from the experiential space itself. That calculation should be part of the leasing decision, not an afterthought.
First-party data capture is an additional consideration. Experiential tenants that collect customer information through app-based interactions or event registrations generate data that benefits the entire property if the landlord negotiates access as part of the lease terms.
How Lease Terms Need to Change for Experiential Tenants
Traditional net lease structures do not work well for experiential tenants. A concept that invests heavily in experience design and technology buildout needs time to build traffic before it can support market-rate rent. Landlords who insist on standard terms often lose the tenants they most want to attract.
Revenue sharing arrangements give the landlord upside participation while reducing the tenant’s fixed obligation during the ramp-up period. Phased rent increases that align with projected traffic growth let the economics adjust as the concept proves out. And TI allowances for experiential spaces typically need to be higher than traditional retail because the buildout is more complex: specialized electrical, AV infrastructure, and flexible floor plans all add cost.
The key for landlords is to structure these concessions so they are tied to performance milestones. A revenue share that converts to a fixed minimum after 18 months, or a TI allowance that is partially recoverable if the tenant leaves early, protects the asset while giving the experiential concept room to succeed. These are the kinds of structures that Tenant Representation teams negotiate when the landlord’s portfolio strategy and the lease terms are governed together.
Perfectly Positioned
Experiential retail is not going away. Consumer demand for immersive, experience-driven retail environments is increasing, and landlords who ignore it will watch their properties lose relevance. The question is not whether to participate. It is how to govern the process.
The landlords who manage this well treat experiential tenant decisions as portfolio-level strategy, not one-off deals. They connect the leasing decision to the construction implications, the design requirements, and the lease administration complexity that follows. When those connections are made before the deal is signed, experiential retail strengthens the asset. When they are not, every experiential tenant becomes a standalone problem.
