New Leasing Models: From Long‑Term Lock‑Ins to Revenue‑Sharing

New leasing models like revenue‑sharing and performance‑based rent are transforming commercial real estate from a rigid, fixed‑cost arrangement into a flexible, partnership‑driven ecosystem where both landlords and tenants share risk and reward. This is especially powerful in modern retail, F&B, co‑working and hybrid offices, where demand is uncertain, and agility is essential.​

New leasing models in commercial real estate

In traditional commercial leases, tenants commit to long lock‑ins (often 5–9 years) with fixed rent and fixed annual escalations, which can be very risky when sales or occupancy drop. New‑age models focus on flexibility: shorter terms, break clauses, hybrid fixed‑plus‑variable rents, revenue‑sharing, performance‑linked clauses and subscription‑style office arrangements.​

What is revenue‑sharing / percentage rent?

A revenue‑sharing lease (often called a “percentage lease” or “percentage rent”) is a model where rent is linked to the tenant’s turnover instead of being 100% fixed. The most common structure in retail and malls is “base rent + X% of gross sales above an agreed breakpoint”, which protects tenants in slow months and rewards landlords when the tenant performs well.​

This model is widely used in shopping centres, high‑street retail, restaurants, cinemas, entertainment hubs and increasingly in experiential and pop‑up concepts. It aligns landlord income directly with store performance, changing the mindset from “collecting rent” to “growing sales together”.​

What is performance‑based rent?

Performance‑based rent takes the revenue‑sharing idea further and can link rent to a mix of business and operational KPIs, not just top‑line revenue. For retailers, that might mean rent tied to revenue per square foot, store profitability or achievement of agreed sales targets, while for offices and logistics it can include utilisation rates, service levels or even energy savings in performance‑based energy leases.​

This approach is gaining traction as investors and occupiers focus on efficiency, ESG performance and measurable outcomes from their commercial real estate footprint. It turns the lease into a results‑driven contract rather than a static rental invoice.​

Why the shift away from rigid, long‑term leases?

Several structural shifts are driving this move from lock‑ins to flexibility:

• Market volatility: Retail, F&B and hospitality are exposed to changing consumer behaviour, e‑commerce and seasonal demand, making long fixed leases risky.​

• Hybrid work culture: Many companies now prefer flexible office leases, shorter commitments and co‑working options instead of locking into traditional 9‑year office leases.​

• Capital efficiency: Startups and new brands want to preserve cash, avoid heavy fit‑out and deposit costs, and test locations before committing long term.​

As a result, flexible leasing models are becoming the norm across premium malls, mixed‑use developments, flex offices and even warehousing and industrial parks.​

How landlords can use flexible models to manage risk

For landlords, the key is to design leases that offer downside protection but also capture upside when tenants succeed. Some practical tactics to mention in your blog:

• Blend base rent with percentage rent

  • Keep a reasonable base rent to cover fixed costs like loan servicing, CAM charges and property management, then add a fair percentage of sales to share in growth.​

  • Use sales breakpoints so that percentage rent kicks in only after the tenant crosses a sustainable revenue level.​

• Use performance‑linked incentives

  • Offer rent rebates, fit‑out contributions or marketing support if tenants achieve specific revenue or occupancy targets, strengthening long‑term relationships.​

  • Structure step‑up rents where stronger performance in early years leads to pre‑agreed escalations, reducing renegotiation risk.​

• Offer flexible terms strategically

  • Shorter initial lease terms or pop‑up leases in prime locations can be used to attract new brands and test concepts before offering longer tenures.​

  • Flexible leasing, co‑working and enterprise flex models help keep occupancy high while catering to a wider mix of tenants.​

How tenants can benefit while aligning interests

Tenants can use these models to control fixed costs and scale sustainably:

• Reduce fixed rent burden

  • Negotiating lower base rent with a performance‑linked component allows brands to enter premium locations without overcommitting in the early years.​

  • This is especially useful for D2C brands, cloud kitchens and newer retail concepts testing physical formats.​

• Build flexibility into lease terms

  • Shorter leases, renewal options, break clauses and expansion‑rights give tenants the agility to adjust their footprint as business evolves.​

  • Co‑working and flex offices let companies pay‑as‑they‑go for seats and meeting rooms instead of committing to large fixed offices.​

• Ensure transparency and trust

  • Tenants should agree on clear definitions of “revenue” or “performance”, reporting formats and audit rights so that variable rent calculations stay transparent and conflict‑free.​

10 FAQs on new leasing models (with SEO focus)

1. What is a revenue‑sharing lease in commercial real estate?
   A revenue‑sharing lease is a commercial lease where the tenant pays rent based on a percentage of revenue, often combined with a smaller fixed base rent. This model is common in retail, F&B and entertainment spaces because it aligns rent with business performance.​

2. How does percentage rent work in a retail lease?
   In a percentage rent lease, the tenant pays a base rent plus a fixed percentage of gross sales above a pre‑defined breakpoint. This allows tenants to manage fixed costs while giving landlords a share of high‑sales periods.​

3. What is performance‑based rent in commercial real estate?
   Performance‑based rent links part of the rent to measurable KPIs such as sales per square foot, store profitability, occupancy or energy savings. It is used when landlords and tenants want leases that reward operational efficiency and real business outcomes.​

4. Why are landlords moving away from long‑term fixed leases?
   Landlords are shifting from rigid long‑term leases because market volatility and hybrid work models make long lock‑ins harder to sustain without vacancy risk. Flexible leasing structures help them attract more tenants and participate in upside when tenants do well.​

5. Are flexible leasing models good for tenants?
   Yes, flexible leasing models reduce upfront capital, lower fixed rent and create room to experiment with locations and formats. They are especially helpful for startups, D2C brands and growing companies that need to scale space up or down.​

6. Which asset classes use revenue‑sharing and performance‑based leases?
   These models are most common in shopping malls, high‑street retail, F&B, cinemas, entertainment centres and hospitality, and are spreading to co‑working and hybrid office spaces. In logistics and offices, performance‑based clauses are often tied to utilisation and service levels.​

7. How do landlords manage risk in revenue‑sharing leases?
   Landlords manage risk by setting a minimum guaranteed rent, using realistic sales breakpoints and carefully defining what counts as revenue. They also diversify tenant mix and invest in marketing and property upgrades that support tenant performance.​

8. What should tenants check before signing a revenue‑sharing lease?
   Tenants should understand how revenue is defined, what reporting is required, whether there is a minimum guarantee, and how long the lease and lock‑in periods are. They should also compare effective rent under different sales scenarios to ensure the model is viable across good and bad months.​

9. How do flexible leases support hybrid work and co‑working?
   Flexible office leases, co‑working and subscription‑style models allow companies to pay only for the seats and services they use, often on shorter terms. This reduces long‑term obligations while giving access to premium workspaces and amenities.​

10. Are flexible leasing models the future of commercial real estate?
    Most industry reports suggest that flexibility, revenue‑sharing and performance‑based rent will keep growing as businesses demand agility and landlords embrace partnership‑driven models. These structures are likely to coexist with traditional leases, giving the market a wider menu of options.