Savills plc
Savills plc
04/15/2021 | Press release | Distributed by Public on 04/15/2021 10:26
Will Covid-19 signal a new chapter in retail landlord/tenant relationships?
It's been over a year since Covid-19 stopped life as we know it in its tracks and the half-life most of us have been living for the last 12 months began. From a real estate perspective, in particular the retail sector, we could write a lot more than a 500-word blog about the effects of the pandemic and the wider socio-economic repercussions as a result. Nevertheless, as we look forwards, what becomes more crucial is how we learn from the last year and subsequently make changes for the future.
In a blog I wrote in April last year (It's not all about tenants - landlords' needs must also be considered during the Covid-19 crisis), I spoke about the need for landlords and tenants to hold hands in their strategy to brace the storm brought about by the pandemic. Has this been the case a year on? In short, yes and also no. It's become increasingly apparent that success with this approach has very much been on a case-by-case basis, however, as always, there is more work to be done.
In most markets, landlords have 'shared' the negative effects of multiple lockdowns with the retailers themselves, cancelling or deferring payments, temporarily discounting rents, introducing flexible leases and, in some instances, agreeing on more turnover-based models.
The latter in particular is a strategy that has been widely bandied around as being a long-awaited solution to the crippling effects brought on by extra costs, including widely-disputed business rates. For retailers, turnover rents offer a lease based on performance and the ability to have a more transparent relationship with their landlord. For many this may seem like a win-lose scenario, but in reality the turnover 'top-up' on top of a base rent may indeed become more widely adopted.
Similarly, as landlords and tenants look to repair their often fractious relationships, close attention has been paid to how they might go about this using digitalisation. The expedition of the digitalisation of shopping centres in particular has seen deeper collaboration for features such as WiFi tracking to optimise marketing and client communication, the creation of apps to facilitate digital and physical sales, online loyalty programmes and also click and collection points. As many retailers look to bolster their online presence this synergy will be more important than ever.
From a practical point of view, landlords will also need to consider how an increase in vacant units as a result of insolvencies caused by Covid-19 will affect those tenants who have survived. They will need to think of imaginative uses including healthcare, last mile warehouse space, flexible office space and others if they are to keep on an even keel as a sense of normality resumes.
Collaboration and mutually agreeable solutions will not just be preferable, but paramount as both landlords and tenants navigate through the last period of distress and (hopefully) begin a new chapter together.