Are changes afoot for traditonal lease structures?

February 2, 2018

Words Andrew Ainscough, Head of Lease Advisory, Lunson Mitchenall |

With 2017 behind us and 2018 already well underway, we have time to sit back and reflect on what has been another successful 12 months of retail.

Looking at how shopping centres and high street assets have revised their strategies over the years, one noticeable shift has been a move towards shorter leases, mirroring that offered in European leases. Landlords and retailers alike now recognise that they are competing not just for sites elsewhere in the UK, but also in locations such as France, Spain and Germany, hence the need to provide increasing flexibility.

Whilst a 10-year term is still the preserve of most shopping centre locations, others in some instances refer to five and six year breaks, subject to a penalty payment if exercised. Interestingly, evidence suggests that despite this added flexibility, very few retailers do break and it is merely a ‘safety net’ in case the store fails to hit the required trading levels.

When it comes to many regional locations, a five-year term is an increasingly prevalent trend, with some leases including breaks at year three where retailers remain concerned by the ongoing changes in the retail landscape; notably travel agents, gaming stores and lower priced jewellers who all evidence the increasing impact of the internet.

Retailers are also having to change their strategies to accommodate the demands of the younger consumer who seek a retail experience. Experiential shops, combined offers and the addition of catering and leisure are all ways in which retailers are developing to stay relevant

So what happens next? The retailer market will undoubtedly continue to fluctuate as we draw closer to the final details of Brexit. European retailers will be a key focus for UK landlords as they strive to retain the likes of Zara and H&M in prime destinations. Will these retailers seek a European lease model with breaks at three, six and nine years? We are seeing most landlords pushing back on this, but some are starting to accept these leasing structures and the European format is becoming increasingly prevalent across the UK, signifying a joined-up approach with our European counterparts.

In some cases, implementing a more flexible strategy allows retailers to renew their leases where they feel the market is strong and consumer feedback is positive. It also enables them to try their hand at a larger number of locations without the long-term commitment that is so often feared in our sector. As a result, retailers remain relevant to their audiences and can deploy capital into business development.

What we can be sure of though is that, despite the oscillations that are part and parcel of the industry, consumer demand will always be there and there will have to be a lot to take us Brits away from our love of shopping.

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What we can be sure of though is that, despite the oscillations that are part and parcel of the industry, consumer demand will always be there and there will have to be a lot to take us Brits away from our love of shopping.
Andrew Ainscough - Head of Lease Advisory

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