Across many U.S. markets, the commercial real estate landscape is feeling the weight of rising vacancy rates—particularly in the retail and office sectors. What we’re seeing now isn’t just a dip in occupancy, but a structural shift in how these spaces are used, valued, and underwritten. As legal and strategic advisors to CRE investors, we’re having more conversations about how to manage this volatility—and, importantly, how to position for what’s next.

Let’s start with the basics: high vacancy rates put direct pressure on cash flow. Whether you own a multi-tenant shopping center or a suburban office park, fewer tenants mean lower net operating income and thinner margins. For investors carrying debt, that can quickly erode returns—or worse, trigger loan covenants if debt coverage ratios dip below the threshold. This is especially challenging for properties financed during the low-interest era, where rising rates are compounding vacancy-related stress.

From a legal standpoint, we’re helping clients review and, in some cases, renegotiate loan terms to create breathing room. Lenders are often more willing to work with borrowers who are proactive and transparent about challenges—especially when there’s a solid plan in place to re-tenant or reposition the asset. We’re also structuring agreements that include rent concessions or early termination clauses that protect landlords while still giving tenants the flexibility they need in this uncertain environment.

But this moment isn’t just about defensive moves. It’s also about reevaluating how space is being used—and whether it still fits the demands of today’s tenants. For many office buildings, the answer may be no. The rise of hybrid work has created significant excess supply, particularly in second-tier or older assets that no longer meet tenant expectations for amenities, layout, or location.

In response, some of our most forward-thinking clients are exploring adaptive reuse. Office-to-residential conversions are gaining traction, especially in urban cores where demand for housing remains strong. These projects require navigating zoning, permitting, and structural challenges—but they also offer a path to revitalizing underperforming assets. We work closely with clients on feasibility reviews, municipal engagement, and the legal restructuring these transitions require.

In retail, vacancy has been less about remote work and more about shifting consumer behavior. Brick-and-mortar is not dead, but it is evolving. The winners in this space are increasingly experience-driven, service-oriented tenants—think fitness, dining, healthcare, or boutique concepts that draw consistent foot traffic. For investors, this means rethinking tenant mix, lease structures, and capital improvement strategies to align with how consumers engage with physical spaces.

Leases, in particular, are becoming more nuanced. We’re seeing increased use of percentage rent agreements, co-tenancy clauses, and short-term renewals that give tenants flexibility while helping landlords preserve long-term upside. From a legal perspective, this requires precise drafting and a clear understanding of each party’s goals. The more aligned the interests, the more resilient the asset.

We’re also advising clients to stress-test their portfolios more frequently. That includes analyzing tenant credit quality, understanding lease rollover risk, and modeling different occupancy scenarios. For investors managing multiple properties across sectors, this level of clarity helps prioritize asset management resources and shape acquisition or disposition strategies.

High vacancy rates are a challenge—but they’re also a chance to get sharper, more agile, and more strategic. This market favors investors who are willing to adapt, and we’re here to help make sure the legal and structural foundations of your deals support that flexibility.