Lease terms are becoming more flexible to accommodate retailers in a testing market, but at what cost to landlords?
The IPD’s study illustrates that retailers are beginning to benefit from more sympathetic lease terms as landlords have been forced to become more flexible during the recession and accept what are historically perceived as onerous terms for a landlord. The information released by the IPD reveals the average retail lease length in their study of 5.7 years.
A tenant willing, and more importantly able, to pay rent in the current market is an increasingly rare commodity and as such landlords are frequently willing to do what they can to help retailers to keep their properties tenanted and to keep the high street busy. Retailers willing to establish new outlets in a market as hard as this will need help along the way.
The need for landlords and tenants to understand each others needs in a property transaction is more prevalent than ever, and the days of pursuing a target headline rent are gone. What is more important today is a deal which is sustainable for both parties.
Rent and rent free periods are obviously the starting points for negotiation, but the lease length soon follows. Retailers today insist on flexibility in their lease to align with their business strategy, however this shorter lease length can be highly detrimental on the other side of the deal.
While landlords are happy to attract new tenants to their property, short lease terms can be costly in the long run. With income only secured until the first break option at year 5, landlords are struggling to reach the valuations they need to keep within the banks loan covenants.
Similarly, an asset with only 5 years of secured income becomes very difficult to sell, for the main reason that banks are very nervous lending against such a short term secured income.
As the retail market shifts to allow flexibility for the retailer, the consequence is landlord’s have fewer options as they still try to satisfy rigid banking covenants.
联络详情:
David Legat
Tel: 0151 242 3091
Email: david.legat@masonowen.com