Landsec’s sensible new leasing options for its retail occupiers offer flexibility and a range of opportunities for partners. Is this an indication that landlords have finally accepted the reality of retail property’s situation?
The property giant Landsec has unveiled four new leases for both new and existing retail occupiers running the full gamut of stores from premium, top-tier space for established brands right through to smaller units for emerging brand pop-ups and activations.
The landlord is not only promising occupiers more flexibility on lease lengths – the most premium space can be occupied for as little as 18 months – but is lowering initial capex costs associated with fit-outs and promising to share precious footfall data with occupiers without any kind of reciprocal agreement on sales data.
Shorter leases, less investment upfront and more data on the kinds of shoppers coming through its centres – Landsec’s new products read like a wish list for retailers over the past few years and follow a wider shift to more flexible leasing arrangements, which accelerated over the pandemic.
“Landsec is not alone in moving to fix what was becoming an increasingly broken model – at the height of the pandemic, Hammerson changed its leasing model to offer more flexibility”
While Landsec’s head of retail brand management Nik Porter would not say that the era of the 10-year lease with upwards-only rent reviews is over, he acknowledges its appeal is waning.
“That model is certainly less popular. Is it dead? It’s too early to say and there are still some brands that want that.”
This is all a far cry from the ugly days of the Arcadia CVA in 2019 – when there was a sense that relations between retailers and landlords had hit a nadir from which they might never recover.
At the time, retailers were vociferous in their claims that landlords were being intransigent and living in the past when it came to restrictive lease lengths and spiralling costs.
Now that battle is over, it seems retailers have won. As one property agent put it: “The retailers have held the whip hand over landlords for a while now and I don’t see a time soon when that’s going to change.”
Leap of faith
For Porter, the mathematics are stark for landlords: “We, as landlords, need to bring better customer service as well to leasing because there is an oversupply of space. So it’s not just about customer service, it’s also about doing everything you can to ensure your tenants are successful.”
Porter is also keen to emphasise the “win-win” potential for this new model, which also represents a shift in tone. “Our brand partners’ success is our success,” he says, “and that’s how we view it, so we’re obsessed with finding that win-win.”
Porter accepts this represents something of a leap of faith for the landlord but says he hopes retailers will be more open to collaboration as time goes on.
“There are some brands that are very good at it, while others are completely closed books when it comes to sharing data with us.
“To be honest, there are still a few that are that way, but we hope maybe after a year or two – when they see our new retail operating model working – that they might see the benefit of collaborating more.”
Landsec is not alone in moving to fix what was becoming an increasingly broken model. At the height of the pandemic, Hammerson changed its leasing model to offer more flexibility for brands in what is becoming an increasingly prevalent trend.
“The demand for retail space is not there in the same way it was a decade ago – consumer behaviour has changed and retail models are changing with them”
The reasons for this are obvious. When the shutters went down during the pandemic, the government line was that those retailers that could afford to pay rents should. Despite that, a number of high-profile retailers, such as JD Sports, simply refused.
Many thought this would in turn lead to a flurry of litigation when the government eviction moratorium was lifted, but it seems the pandemic has finally removed the scales from landlords’ eyes.
The demand for retail space is not there in the same way it was a decade ago – consumer behaviour has changed and retail models are changing with them.
In a world where many retailers will be taking fewer stores, landlords will need to be more experimental with their space and more flexible about who they work with. This should mean retail destinations are more interesting spaces for consumers.
Models like Landsec’s will also be welcomed by retailers and should be enough to entice new brands and occupiers to take a chance on physical space with much less risk to their bottom line. That truly will be a win-win.
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