The retail landscape in the UK is set to experience significant changes in how store rents are determined following the pandemic. Traditionally, long leases with rent reviews that only increased have been the norm in the UK. However, the challenges brought by the coronavirus crisis have shed light on the difficulties faced by retailers, prompting a potential shift towards shorter leases and rent payments tied to turnover and footfall, which are more commonly seen in countries like the US, France, and Italy.
The UK has witnessed a steady increase in shop rents over the years. However, with the uncertainty of Brexit and the rise of online shopping, more and more retailers are struggling to meet the high rent and business rate demands. As a result, discussions about the need for a new rental agreement approach within the UK retail sector have emerged.
A survey conducted by property consultancy firm Colliers International revealed that over 40% of landlords are now considering factors such as footfall and turnover when determining rents. Additionally, nearly 80% of retail landlords anticipate permanent changes in the calculation of shop rents due to the pandemic. The survey included landlords who collectively own more than 120 million square feet of retail property.
Matthew Thompson, the head of strategy at Colliers, explained that landlords currently have access to a wealth of pertinent data that can bring more accuracy to pricing, benefiting both property owners and their tenants. However, this approach heavily depends on trust between landlords and tenants, which has been in short supply in recent years due to company voluntary arrangements and many retailers failing to pay rent on time.
The potential shift towards rent calculations based on turnover and footfall reflects a growing acknowledgement of the challenges faced by retailers, particularly in light of the pandemic. Linking rents to these factors could provide greater flexibility and enable retailers to align their costs more closely with their actual performance. It could also encourage landlords to actively support their tenants in driving footfall and increasing turnover, fostering a more collaborative and mutually beneficial relationship.
While the long-standing lease model has its benefits in terms of stability for both landlords and tenants, its limitations have been exposed by the current crisis. The adoption of new methods for calculating rents could ease the financial burden on struggling retailers and contribute to the overall health and resilience of the UK retail sector.
As the industry looks towards recovery and the future after the pandemic, the issue of store rents will remain a key topic of discussion. Striking a balance between the interests of landlords and tenants will be crucial in establishing a sustainable and thriving retail environment in the UK. Embracing new approaches to rent calculations that consider turnover and footfall can lay the foundation for a more flexible and resilient future.