Andrew Ainscough, head of lease advisory, gives his views on how the retail market will navigate the choppy seas ahead.
With the dust still settling after what has been rather a turbulent summer, the nation has come to a valuable realisation: that we possess the ability to change. Our triumphant efforts in the Rio 2016 Olympics have temporarily distracted us from our decision to leave the EU, leaving us Brits somewhat comforted that we can still keep going despite a severe rocking of the sturdy boat that is the UK. The resilience shown around this seemingly enormous political event can be translated into our everyday habits, of which shopping is one. With the retail scene constantly shifting and progressing, we look at how this is being dealt with by the people in charge of shaping our retail environment.
With fashions and fads evolving on a weekly basis, it is becoming progressively difficult to predict what customers want to see in retail and leisure spaces. Of course we can combat this constant change with the likes of pop up shops and temporary lets, but what really matters is how we overcome the transient nature of shopping in the long term as, at the end of the day, this is how we protect our client’s bottom line.
Landlords are under pressure to get the best out of their current tenant mix whilst keeping a close eye on what the market is doing; predicting trends and patterns to keep sales high and maintain consumer interest. The most apparent way to control this is through lease lengths. Whilst most retailers are locked into a lease term of 10 years, we are seeing an increasing number seeking shorter leases of five years and even some with break options after three years.
Gone are the days of 25-year terms, however whether this is a breath of fresh air or a worry for landlords is something that is still up for debate.
On the one hand, they are in a position to shake up their tenant mix more frequently, presenting a platform upon which new and emerging brands can grow, yet on the other, they are compromising the vacancy rate for their scheme. Risk-taking with thousands of square feet is not for the faint-hearted yet is something that is becoming increasingly common.
As ever, the balance between demand and supply plays a part as does overall retail trading. Churchill Square, Brighton (for which both our shopping centre leasing and lease advisory team work) is a prime example of this. With limited availability and onward rental growth, recent renewals and lease re-gears have been negotiated for lease terms of 10 years and above without break clauses and with limited, if any, rent free incentives. This serves to highlight the positive trading performance of the scheme and tenants’ willingness to commit in a proven location where they are keen to retain representation. With excellent levels of trade at the scheme, this counteracts the previously perceived view that even shorter leases are the future and rent reviews would be a thing of the past.
This demonstrates how retailers are shrugging off an outdated tried and tested model in exchange for a spot in a prime shopping destination. They are moving away from break clauses, risking the comfort of a ‘get out’ and replacing it with an acceptance that they may have to take the rough with the smooth.
As a result, they strengthen the relationship with the landlord which, as is well-known in the market, is never an easy one to forge.
It is impossible to predict what will happen in the next few years, yet as we move towards an overhaul of the current political paradigm, the retail and leisure sector must remain agile. Whether this be through the methods discussed or by other means, we need to join together in creating a nimble approach that can allow us to keep up with the winds of change.