Retailers are benefitting from some of ‘the most flexible lease regimes ever’, says the British Property Federation (BPF). This is based on data released by the Investment Property Databank (IPD), which examines commercial property landlord and occupier arrangements across the market.
The IPD offers performance analysis for the real estate industry. The two organisations have combined to present retail marketing consultant Mary Portas with the Annual Lease Review 2011.
Anointed the Queen of Shops by the media, Portas was appointed by the government earlier this year to investigate the level of empty commercial property in the UK high streets. Part of her remit is to examine the relationship between retail occupiers and commercial property landlords to see how things can be improved to encourage increased occupancy rates. She will look at ways to halt a perceived ‘decline of the High Street’ and prevent the growth of so-called ‘clone-towns’, where chain stores dominate.
The IPD’s report analyses no fewer than 47,708 retail tenancies – the largest ever independent study.
The use of ‘break clauses’, which give commercial property tenants the right to close a tenancy before the end of the agreed term, are said to have significantly increased; 34% of new leases, up from 3.9% in 1999, are identified as incorporating the clauses, ‘as retailers look to hedge against economic uncertainty’. This is of course completely understandable – as the economic climate worsens companies will naturally look towards shorter-term arrangements to protect themselves in the event of a decline in their business.
Average lease lengths in retail are 5.7 years. This compares to 4.7 in offices and 4.2 in industry. These are described as ‘constant’ in Central London and South East commercial property markets, ‘while a further decrease was observed across the rest of the UK’.
The average ‘rent-free’ period on a commercial property is recorded at 10 months. After that, figures show retail tenants will begin paying rent that in real terms has fallen by 37% since 1989.
This demonstrates that commercial property ‘landlords are increasingly flexible and retail property leases continue to adjust to economic conditions’, says the BPF.
Mary Portas will issue her recommendations this autumn.
