Covid-19 has pushed retailers to seek rent and lease concessions, which has in turn accelerated the retail property industry’s adoption of flexible leases and turnover-based rents.
While this is a positive development, with potentially real benefits in both parties collaborating to share the risk and rewards of retail destinations, it could pose a significant threat to landlords’ income.
The main drawback is that rent negotiations could become slanted in favour of retailers, leaving landlords to shoulder a disproportionate amount of operational and income risk. However, property managers have an opportunity to play a significant part in making turnover rents a successful model.
With asset owners now more invested, the new model presents an opportunity for the industry to standardise the process and make sure that turnover-based rents are applied fairly and consistently. Indeed, the right property manager can help streamline challenging lease discussions, thereby avoiding repercussions for shopping-centre owners.
Since it looks as though turnover-based rents are here to stay, for all parties to commit fully to the process we collectively need to draw up an industry-wide code of conduct to introduce more consistency to the process. This would mean introducing new ground rules, including:
- Joint initiatives to standardise turnover leases across a retail asset, as right now different retailers are operating on different rent-collection dates with widely differing terms;
- Independent reporting to assist in calculating each retailer’s turnover at a given scheme. This would build trust between landlords and retailers and ensure accurate rent levels; and
- A collaborative approach to data and technology to maximise transparency across an individual asset, with owners sharing footfall and car-park data and occupiers providing trading data.
Balance and trust, along with a proactive property manager, are key to a successful relationship between asset owners and operators – not just during a global pandemic, but for a long-term partnership that aligns interests and potential returns.
Georgina Grazebrook is partner at Workman