Legal & General launches new flexible leasing model for retail and leisure
Legal & General (LGIM Real Assets) has launched a new commercial leasing framework for retail and leisure occupiers (flexible partnerships model), with an initial focus on turnover rent options.
The flexible partnerships model marks a departure from traditional long-term leases, to a fully flexible approach that brings optionality to occupiers from start-ups all the way to superstores.
With structural changes impacting the retail and leisure sectors in recent years, predominantly due to the rise of e-commerce and rapidly changing consumer expectations, the traditional leasing model and the ‘1954 Act’ is no longer fit for purpose for many occupiers. Over the past five years, retail business launches and failures have increased by 29 per cent and in 2019, the average length of a new retail lease had fallen to under five years. Historically, landlords have taken a ‘one size fits all approach’, which in today’s fast paced and evolving leisure and retail sectors is no longer fit for purpose.
In response to sector challenges, accelerated by the coronavirus pandemic, LGIM Real Assets has developed a flexible partnerships model that will deliver optionality and be available to existing and future occupiers. This market leading initiative aims to be UK-wide and applicable to all assets, playing a key role in supporting UK high streets by pioneering new owner and occupier partnerships. The foundation of the new leasing structure will consist of four core packages:
Flexi is for white-boxed spaces aimed at start-ups for 3-36 months, on turnover deals and is aimed at emerging brands, new concepts and seasonal businesses. The aim is to reduce the initial cost, complexity and commitment length for small businesses whilst providing the innovative and exciting occupiers for customers.
Operational is a turnover deal with an owner break linked to performance, with mid-term leases of three-five years aimed at operators who the company want to work with and remain important partners, but for whom the traditional leasing model no longer fits. Collaborative sharing of risk and reward between owner and occupier, drives stronger performance through partnership and offering more involvement from owners to drive audience group.
Flagship is a traditional lease on a longer term of five-plus years for resilient occupiers who are financially solid, guarantee footfall and who prefer the traditional model.
Flexi Flagship is an amalgamation of the turnover flexibility of Flexi, but with the lease length of Flagship aimed at operators who need longer-term security. The idea is to help relevant businesses, particularly in the leisure sector, that have higher initial fit-out costs, to pay off and/or require longer lead times to engage a local customer base.
Denz Ibrahim, Head of Retail & Futuring at LGIM Real Assets, says: “Demonstrating our commitment to bring innovation to the real estate sector, this new flexible partnership model really sets the bar for institutional landlords. It will provide optionality to all our existing and future occupiers in how they want to partner with us, and flexibility for us around who we want to work with.”
“Retail is not only changing through market forces, but also culturally. Our role as owner is shifting from what was solely ‘the librarian’ (collecting rent, renting shops and cleaning spaces), to becoming an ‘editor’ of the space. We need to ensure we have the right content, at the right time, in the right places, to support both occupiers and consumers. Understanding these changing behaviours and having more curatorial control over our assets allows us to be on the front foot in delivering future ready places, whilst helping our occupier weather the seismic changes impacting the retail and leisure sectors.”
LGIM Real Assets believes that as trading levels recover post Covid, this new flexible partnerships model has greater potential for investor income upside and the ability to generate increased and better quality occupier activity through optimised lease commitments. This transparent and collaborative approach will revolutionise the way LGIM Real Assets engages with its retail and leisure occupiers, resulting in enhanced cashflows and a better alignment of risk, the company says.