Independent retailers now have the ‘most flexible leases ever’

According to a new study from the Investment Property Databank, independent retailers are seeing increasingly flexible leases and a rent drop by a third (in real terms) over the past two decades.

The study surveyed 47,708 retail tenancies and is being touted as the largest ever independent study of retail tenancies

Key findings from the IPD include:

-Average lease length of 5.7 years;
-Significant increases in break clauses ‘as retailers look to hedge against economic uncertainty’;

-34 per cent of new leases for High Street shops have a break clause, up from 3.9 per cent in 1999.
-Retailers have an average ‘rent free’ period of ten-months on a rent-weighted basis;

-The separate IPD data on standard shop rents shows that while inflation has risen by 94 per cent since 1989, rents for standard shops have only risen by 24 per cent, and in real terms fallen by 37 per cent.

“The issues facing our High Streets are extremely complex with recession, structural changes caused by the internet and consumer preference all in play,” said Liz Peace, chief executive of the British Property Federation. “In such times of change it is important that leases adapt.”

“Today’s data clearly shows landlords are increasingly flexible and retail property leases continue to adjust to economic conditions, with leases that are shorter, offering breaks and substantial rent-free periods to help new shops to get off the ground. “Whilst rents in prime retail areas and sites such as shopping centres will have increased substantially, many high street shops will have rents that in real terms are substantially lower than in 1989.”

“During the last early-90s recession, there were legitimate claims from the retail community that the ‘institutional lease’, which commonly was for 20 years plus, with upward only rent reviews and no breaks, was inconsistent with many retailers’ needs. The property industry has significantly changed the variety of its offer and I don’t think that is always well recognised.

“Rather like our high streets, however, the property industry thrives on its variety, and ability to raise investment. There is no one size lease, but a mix that caters for our industry’s office, industrial and retail customers.”

Retail guru Mary Portas is currently compiling a report for the Government on the state of the High Street.