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Lease expiries mean that the ball is in your court

I’ve recently been looking into the retail property sector for Drapers’ upcoming focus on the issues facing landlords and tenants and was shocked to find out that a high level of high street leases are set to expire by 2015, potentially signalling a dramatic shift in the retail landscape as retailers look to ditch their worst performing stores.

Research by commercial real estate agency Jones Lang LaSalle reveals that 50% of high street and shopping centre leases, and 15% of those at retail parks, are set to expire by 2015. Admittedly that figure not only includes the lengthy 25 year-long leases of the late 1980s, 20 year leases from the early 90s, the 15 year leases of the late 90s, and the ten year leases of the early 00’s, but also the five year leases of recent years.

However, for those trapped into lengthy lease agreements this will be an opportunity to negotiate more favourable terms. The common system of upward only rent review clauses have shielded landlords from the effects of economic decline, and the fact that in areas outside of central London and key shopping centres, those rents no longer reflect true market value.

While quarterly rental payments have also been putting cash-flow constraints on businesses at a time when conditions are already strained, with fashion retailers such as New Look, Monsoon and Sports Direct all asking their landlords to accept monthly rental payments.

Changing consumer shopping habits and the popularity of online and out-of-town retail is also changing occupational requirements, leading retailers to reassess their property portfolios. In March, former Aurora Fashions president Stewart Binnie said that the chain - which operates the Warehouse, Oasis and Coast fascia’s - could close half of its stores as its customers head online, and Aurora won’t be the only one.

Rents are, of course, only part of the problem. Business rates and hefty service charges are also influencing property decisions, and if we are to maintain a healthy high street then retailers and landlords are going to need to come together to find ways of getting these costs down.

- For more on the issues affecting the retail property sector read Drapers in-depth analysis on May 12


James Knowles, Features writer, Drapers

james.knowles@emap.com

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