The conventional wisdom in commercial real estate has long held that national tenants are the gold standard for property owners. Their established brand recognition, substantial financial resources, and standardized operations seem to make them the obvious choice over local businesses. However, this perspective deserves a closer examination, as recent market trends and economic shifts have revealed that national tenants may not always be the safer bet they’re assumed to be.

The Changing Retail Landscape

The retail industry has undergone dramatic transformations in recent years, with even major national chains facing unprecedented challenges. The rise of e-commerce, changing consumer preferences, and economic uncertainties have forced many established retailers to reassess their brick-and-mortar strategies. Companies like Bed Bath & Beyond, JCPenney, and Macy’s have closed numerous locations, leaving property owners to deal with vacant big-box spaces that are difficult to repurpose or re-lease.

Financial Stability: A Closer Look

While national tenants typically have deeper pockets, this doesn’t always translate to greater stability. Large companies often operate under significant debt loads and are subject to shareholder pressures that can lead to rapid strategic shifts. When national chains decide to restructure or declare bankruptcy, they usually close multiple locations simultaneously, creating a ripple effect across markets. Local businesses, though working with smaller capital reserves, often operate with less debt and more sustainable business models focused on long-term community presence rather than aggressive expansion.

Market Adaptation and Flexibility

Local tenants often demonstrate superior ability to adapt to market changes and local consumer preferences. They can quickly modify their business models, adjust product offerings, or pivot their services based on immediate community feedback. National chains, constrained by corporate policies and standardized operations, may struggle to respond to local market conditions or changing consumer behaviors effectively.

The Hidden Strength of Local Tenants

Successful local businesses often bring several advantages that national tenants can’t match:

Strong community relationships and loyal customer bases that persist even during economic downturns More personalized service and unique offerings that differentiate them from online competitors Better understanding of local market dynamics and consumer preferences Greater motivation to succeed in their specific location, as it’s often their only location Hands-on ownership that results in more careful property maintenance and prompt issue resolution

Risk Diversification Considerations

Property owners might actually benefit from a strategic mix of national and local tenants. This approach provides natural risk diversification, as local businesses’ success isn’t typically correlated with national retail trends. When one sector struggles, the other might thrive, providing more stable overall property performance.

Lease Terms and Negotiations

While national tenants often come with standardized lease terms that can be harder to negotiate, local tenants might offer more flexibility in lease structures. This can be particularly valuable during market downturns or when property improvements are needed. Local businesses may be more willing to consider creative lease arrangements that benefit both parties long-term.

The Community Impact Factor

The presence of local businesses can enhance a property’s overall value by creating a unique character and driving foot traffic. Properties known for hosting successful local businesses often become destination locations, attracting complementary tenants and maintaining stronger occupancy rates. This “community anchor” effect can be more valuable than the perceived safety of a national tenant.

Due Diligence: A Different Approach

Evaluating local tenants requires a different due diligence approach than assessing national chains. Instead of relying primarily on credit ratings and corporate financials, property owners should consider:

Local market reputation and business history Personal guarantees and local asset verification Business plan viability and market fit Owner’s industry experience and local market knowledge Community support and existing customer base

The Future Perspective

As retail continues to evolve, the traditional advantages of national tenants may further diminish. Local businesses that successfully blend physical presence with digital capabilities while maintaining strong community connections could represent the future of resilient retail tenants.

Conclusion

While national tenants still play an important role in commercial real estate, property owners should challenge the assumption that they always represent the lower-risk option. A thoughtful evaluation of both national and local tenants, considering factors beyond just financial statements, can lead to better risk-adjusted returns and more sustainable long-term property performance. The key lies in understanding that tenant quality isn’t solely determined by size or brand recognition, but by a complex mix of factors including market fit, adaptability, and community integration.