Having just about recovered from the spate of retail administrations that started with Courts, the more recent collapses of those including MFI and Land of Leather, coupled with the impact of the recession, have hit the retail park sector hard. Voids are at a record high and so it is now the retailer that is increasingly calling the shots.
“You can’t be choosy as a landlord – that’s changed quite fundamentally in the last six months,” says Edgerley Simpson Howe associate Adam Patrick.
Landlords, faced with the prospect of having to pay empty rates on units left vacant for more than three months, are doing deals they would previously have baulked at – particularly on the struggling bulky goods parks.
King Sturge out-of-town retail partner Mark Rudman says: “There is limited demand and an overhang of supply, so all those landlords are keen to do what they can to bring retailers in.”
Matthew Davies is chief executive of Pets at Home – a retailer that is still expanding. He agrees that things have changed. “The fact that rental aspirations have come off from a landlord’s perspective shows there is a balancing there,” he says.
“On retail parks where there are a number of voids, rentals have fallen away. There are some attractive incentives at those parks, but it doesn’t matter how big the incentive is; you have to be able to build a business there.”
Because retailers are increasingly dictating terms, incentive packages have changed dramatically. Bulky goods retailers that are still in expansion mode have even more power. “If you are a bulky goods retailer looking for space then by and large landlords are giving three years rent free. It’s bargain time for retailers,” says Stephen Yarnold, partner at Yarnold & Partners.
But it’s also important retailers do not abuse their new position of power – landlords are having a tough time too. Patrick says many deals simply aren’t happening because tenants’ need for cash is also at an all-time high. “There just aren’t the incentive deals that were there before and that’s leading to stagnation on some schemes, which may well last for another six months,” he says.
Michael Neal, director of property and fund manager of the retail warehouse fund at Henderson Global Investors, agrees. “The tenants want the premium to pay for the shopfit but many a landlord doesn’t have it and is having to offer rent-free as an alternative,” he says.
Landlords are realising the change of power means they must be seen to be doing more both to support existing retailers and attract new ones. Landlords are also softening towards those retailers that are having a tough time, giving them monthly rents and rent concessions to keep them trading.
Little room for manoeuvre
But what else can they do? The normal tactics aren’t necessarily an option. Many of the big landlords have gone through or are going through rights issues to raise cash but are still struggling to justify investing in incentives such as park refurbishments.
“Landlords are looking to do all they can to improve their schemes but it all has a cost. As a result most people aren’t adding value; they are mitigating their losses,” says Rudman.
Patrick agrees. “In the current climate for landlords it’s turning towards income preservation rather than how they can spend money speculatively,” he says. “The concentration is on being more robust and defensive – for example, looking at covenants and empty units or trying to subdivide space,” he claims.
Keeping up the pace
The landlords themselves stress that they are working hard to add value to their schemes. Henderson, for example, completed a£1m refurbishment of its Blackwater Shopping Park at Farnborough in Hampshire in November last year. Meanwhile at The Brewery shopping centre in Romford, Essex, it is opening a restaurant block with a children’s play area and a Costa Coffee, as well as refurbishing the car park.
This latter tactic of bringing in caterers like Costa Coffee and Starbucks is being more generally employed by landlords in an attempt to increase dwell times and appeal to female shoppers.
Fixed-price MOT, car service and valeting business In’n’Out is another example of the type of company landlords are bringing in to increase dwell time. The business opened its first store in 2007 and wants to expand from five to 21 outlets by the end of the year. GVA Grimley associate Stuart Rose, who is joint agent for the business, says that apart from being customer friendly and convenient, landlords realise that In’n’Out attracts a “captive audience that is quite happy to go off and shop”.
When a landlord does attract a new tenant, marketing is vital, but such initiatives have been scaled back in the present climate. However, Land Securities claims it is trialling a cost-effective email marketing campaign at its Lakeside retail park that is allowing it to increase communication with local retailers and boost business.
Land Securities head of retail marketing Tom Foulkes says: “Unlike shopping centres, retail parks don’t have on-site marketing teams so we came up with the email marketing campaign which is about promoting those offers that are available at that park that week or month.” Land Securities launched the first of its monthly VIP emails in January. “The retailers love it because it’s light of touch and it’s about promoting their existing offers. It’s also incredibly reactive to that park, so if a retailer is struggling we can put that retailer at the centre of it,” he explains.
Foulkes is confident the scheme will roll out to other parks in the portfolio. “This is exactly what the market requires. We want to be the landlord of choice and to do that we need to be seen to be reacting positively,” he says.
Foulkes declines to detail where the cash to fund the initiative is coming from, but insists it isn’t from service charges. “This is a landlord cost. We don’t have limitless resources but we have to do something,” he says.
Other landlords are fighting to save their tenants money. British Land says it is doing all it can to reduce retailers’ occupancy costs. “That has been a key focus. Our aim is to reduce retail park service charges by 5 per cent this year,” says fund manager Mark Stirling. “It means taking a more aggressive look at energy savings, cleaning a little less frequently but not cutting down on quality and renegotiating security contracts.”
The balance of power may have shifted but it’s going to remain a delicate tightrope walk for some time yet.
A changing landscape
With the collapse of retailers such as MFI and Land of Leather, retail park voids are at a record high. Increasingly, retailers are calling the shots
Landlords are doing deals they would have previously balked at – for bulky retailers looking for space, landlords are often giving them as much as three years free rent to entice them
Landlords are striving to revamp retail parks to increase footfall and attract retailers
Hospitality retailers such as Costa Coffee and Starbucks, as well as businesses such as car valeting services, are increasingly appearing on retail parks as landlords try to improve dwell time