Tenants and landlords rethink retail stores with new models for profit

Rent, rates and lease agreements that make up the retail property market have failed to keep pace with the shape of modern retailing; that’s now agreed. It’s the classic landlord tenant dilemma – neither see the other’s point of view and the relationship is primarily adversarial.

However, before we suggest how the retail property market need to change, first remember that your pension is almost certainly strongly exposed to commercial rents and those returns are going to fall. So, before we talk about change, check with your fund manager that they have some post-retail property plans for you.

Fortunately, there are landlords that can not only see things from the tenant’s point of view, but can even look ahead of it. Karen Harris from INTU spoke at Future Stores a few weeks ago and she is happy to acknowledge that online retail will be around 30% in five years’ time. She knows that brands are increasingly going direct, and she knows that Amazon is many things, but not a retailer so it is not coming to save retail as we know it.

Now, when the landlord tells you there’s a problem, then it makes sense to pay attention. She then talked about how the store will become a media channel, possibly the primary one according to other sources including Guy Smith at Arcadia who also spoke at the event. She also cited some of the cooler, newer brands that are doing it differently – American Girl, b8ta, Birchbox and Bite – but what we all now need to know is, how will landlords and tenants work differently to deal with the simple fact that rent will soon no longer be tied to sales per square foot.

Here’s a few ideas for the retail property market beyond the most obvious, which is broader mix of retail, entertainment and hospitality, all unified by social programmes and schemes like Heathrow Rewards.

Consider pop-ups

Provide free space for retail brands to experiment by building pop-ups, but let the landlord curate the best ideas so the integrity and image of the shopping area are protected.

Collaborate through working groups

Create new working groups with tenants that are complementary in terms of demographic and offer, so that they can all discuss how to do things better together. While it sounds like this already happens to some extent, I think that retailers probably need to cosy up more closely together to solve a shared problem and talk it out openly with the landlord.

Develop new neighbourhood mall formats

Rethink the shopping centre or high street in the context of its wider environment. US apartment developments have already embraced on-site retail that includes cafes, restaurants, dry cleaning and gyms, that go well beyond simple planning gain, so that there is actually no need for the tenants to go anywhere, which if you live in some US suburbs, is probably no bad thing.

Retail property market – don’t rule out shorter leases

Flexible and shorter-term leases will scare many landlords but if they are pitched on the basis that the retail centre is constantly freshened up with new tenants and new ideas, then queues to rent will start to form and the landlord need no longer panic about short leases. Surely, having a reputation for not being like a typical landlord must attract the right sort of business?

Make landlords lead the way

For all these good things to happen, landlords are almost certainly going to have to be the ones the fund all the good ideas, many of which, in the nature of innovation, will fail.

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