Practice Briefing The future of the UK turnover-based lease in the world of omni-channel retail

Abstract

Purpose

Historically supply and demand have set the rent level for shops. Turnover rents were brought over from America in the 1980s as a way for landlords to benefit from the tenant's success without having to wait for the next rent review. In addition, from a property management viewpoint, landlords soon realised the benefit of having access to the turnover information of each store as it meant landlords could easily see who and which category of goods was doing well and who was failing. However, in the 2010s, there has been a huge change in shopping habits with many retailers adopting a business model that incorporates online transactions into the use of the physical store with, for example, click and collect. As a result, some landlords are beginning to see turnover rents as redundant for retailers with strong e-commerce strategies as they are only able to capitalise on the sales that happen in the physical store. Other landlords see the turnover information as crucial for running their centres and are searching for new ways to include all relevant sales, online and in-store in the lease. This briefing discusses the issues and challenges brought about by this change in retail practices.

Design/methodology/approach

This practice briefing is based on a series of interviews with the principal stakeholders in the retail market.

Findings

This briefing is a review of the UK retail market at the end of the 2010s and offers insights into the market going forward.

Practical implications

This briefing looks at how the change in sales technique used by retailers to encourage online sales will affect the future of the turnover rent leasing model used in UK shopping centres and other retailing locations.

Originality/value

Landlords are seeking to adopt leasing strategies where they have access to the turnover information without any loss of profit. This briefing identifies leasing models that will, with the agreement and partnership of the tenant allow agreements that include factors such as the halo effect, click and collect and multi-channel in-store purchases in the rent.

Citation

Harper, A.L.E. (2023), "Practice Briefing The future of the UK turnover-based lease in the world of omni-channel retail", Journal of Property Investment & Finance, Vol. 41 No. 3, pp. 319-332. https://doi.org/10.1108/JPIF-07-2022-0054