turnover-based rents at London Designer Outlet, the capital’s leading fashion
and lifestyle outlet centre, since we opened almost seven years ago. The
benefits are so strong that this is also Quintain’s go-to lease for retail and
leisure at its £3bn, 85-acre Wembley Park.
the criticism from landlords who say: ‘We have our own business to run; why
should we run the retailers’ businesses too?’ This misses the point.
turnover-based rents are so closely aligned to individual stores’ or
restaurants’ performance, they create a symbiotic relationship between landlord
and tenant. In good times, both parties benefit; in less favourable times, both
have an incentive to seek improvements. As a result, the LDO team has a really healthy
working relationship with our tenants, whether global brands or UK-only
tune with retailers and, in turn, visitors. As a result, we can look to enhance
our visitors’ experience at the centre and iron out wrinkles that might spoil
their enjoyment. For example, it led to the introduction of hands-free shopping
over a year ago; we were the first UK shopping centre to offer Dropit, the
app-based, store-to-door delivery service. Guests that use this service
generally spend more, benefiting the retailers, because the challenge of
carrying shopping bags home, or back to their hotel, is removed.
lockdown has highlighted landlord-tenant relationships and lease obligations.
At Wembley Park, Quintain always emphasised that the relationship with tenants
was a partnership. The turnover-based rents model has in-built resilience in poor
trading conditions – not that anyone could have predicted Covid-19. It meant
tenants’ financial burden was mitigated as the turnover element of leases
became irrelevant, providing a clearer start for renegotiations.
result has been a robust tenant mix, with almost 80% of our retailers reopening
on 15 June, including Nike, Levi’s, Puma and Adidas. The remainder have now
reopened, as did the restaurants in early July, in keeping with government guidelines,
enhanced by our own local initiatives. We agreed individual health and safety
plans and procedures with every tenant, demonstrating the strength of the
future of rents in the retail and leisure sector will change considerably in
the post-Covid-19 world. Commercial arrangements between owners and occupiers
will rapidly move away from quarterly rent payments and regular upward-only
reviews. It is a shift away from simply considering what rent a landlord can
get for a unit and what yield can be realised. The focus is moving to a
stronger consideration of overall tenant mix, a better understanding of
potential revenues for each retailer and, in a sector adopting more
experiential attractions, greater thought about how a tenant will add to a
memorable day out for all guests.
worked for seven years with leases where the turnover element promotes strong
partnerships, we have seen many benefits. I understand why some asset managers
now see them as an essential component of forward- thinking leases for the
post-Covid-19 world. They create stronger landlord-tenant relationships because
of the mutual benefits. This deeper understanding of tenants’ needs can lead to
innovations that benefit all tenants and guests.
At a time
when other landlords have been less supportive, the sense that ‘we are all in
this together’ has engendered more productive renegotiations of tenants’ terms.
That is why turnover-based rents are the best solution for the future of
the retail and leisure sectors.
Shepherd is Realm’s general manager for London Designer Outlet