As occupational markets continue to challenge, landlords need to be agile in their thinking

With relative inactivity from national retailers, landlords are thinking laterally to keep their centres full and vibrant.
Written By:
David Legat, Knight Frank
4 minutes to read
Categories: service Occupier

As the occupational markets continue to challenge, landlords and their advisors need to be agile in their thinking, firm with their decisions and efficient in their delivery.  The market is moving fast and the ability to close deals is crucial to avoid missed opportunities.

Against the backdrop of a re-think of how we categorise shopping centres, there is an acceptance in centres of all shapes and sizes that it is about much more than just national retail.

There has been a structural shift in the retail world. The way we shop has changed. As a result, landlords are battling the basic economics that the supply of retail space outstrips demand and so alternative solutions need to be found to fill surplus space.

Non-retail occupiers and independent retailers need to be sought out, engaged and accommodated into shopping centres to help fill the voids.

Alternatives to retail

Gyms were the trailblazer of the non-retail uses and are now an established sector with over 7,000 gyms in the UK and total gym membership approaching 10 million.

Like many non-retail uses, gyms not only fill vacant space but also add a different dynamic to a shopping centre; different customers, different hours of usage, all of which start to create a more vibrant and diverse sector.

Soft play, healthcare, adventure leisure, competitive socialising, communal workspace, markets, libraries, the list of uses now going into what was traditional retail space is extensive and diversifies the traditional retail line up. They create reasons for people to visit and complement the retail offer.#

"The focus on non-traditional retail users has been borne out of necessity and is now an integral part of the leasing strategy on any centre."

Specialist market operators are emerging as ‘problem solvers’ to create and run spaces which are let to a host of independent operators all under one roof; Make Shift and their Pop Brixton and Peckham Levels schemes are good examples.

While these types of operations are still London focussed, there is no reason the concept of diversifying the offer by facilitating small, independent and genuinely interesting operators cannot be rolled out across every town.

Independents enjoying a renaissance

The focus on non-traditional retail users has been borne out of necessity and is now an integral part of the leasing strategy on any centre, but by no means can retail as a whole be dismissed.

Often overlooked and perpetually undervalued, the independent retailer offers a category of occupier which is bucking the trend of the national markets.

Small, independent and local retailers by their nature are relevant to their catchment. To survive they must provide what their customer wants, and they also provide what a conscientious landlord wants; differentiation, experience, a sense of place. All buzzwords commonly quoted with no substance on how to deliver.

Smaller retailers do not have the weight to throw around that the national retailers do when taking on new leases, and so are not pushing the deals beyond the limits of commercial viability.

Small, independent and local retailers by their nature are relevant to their catchment

In the current market, this pragmatism makes them a category which cannot be ignored. Concerns are still attached when agreeing deals with smaller retailers over covenant strength. But in a market littered with CVAs there is now often a question mark over some larger tenants previously thought of as safe income.

There is no doubt the most active parts of the occupational markets at the moment do not include many national retailers, discounters aside. The future is not certain, but one thing that is certain is that there needs to be a fundamental shift in the way smaller occupiers, be they retail or non-retail, are viewed, accommodated and valued.

The deals take more work. Landlords need to put the effort in to truly understand their potential new tenant, and importantly need to be flexible on the deal structure to allow a genuine partnership to be formed.

If done well, the end result helps create the Holy Grail which landlords are striving for – a sustainable centre with flourishing tenants, who pay rent.

David Legat is a Partner in Knight Frank's Retail team. He acts for a range of shopping centres, landlords and leasing schemes across the UK.