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Why retail needs a new leasing model

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Colliers Retail is developing a new way of pricing retail space. Matthew Thompson, Head of Retail Strategy, explains the approach.

For retailers to have the best chance of survival in 2021, the way in which retail space is priced needs to be changed to focus on data. Spend data, footfall and brand exposure metrics should all work together to create a fairer payment strategy for retailers and landlords and mirror the way in which online stores operate.

Data

Data is at the heart of understanding a retailer’s success, but we have never seen that being taken into consideration in discussions around rent and lease structures. Understanding spend data isn’t anything new, but combining this with footfall, behavioural and demographic measures can revolutionise how we define success. This can then be used as a base point for a transparent and open discussion between landlord and retailer on their terms of agreement.

Technology

The growth in technologies available to assess the performance of retail assets in a physical context has exploded in recent years. The wealth of data available today provides an opportunity for owners and occupiers to benchmark performance of physical retail against online in a way that has never been possible. Indeed, landlords are able to capture the value that shops play in driving online sales, these datasets are widely available. Our recent research has shown for instance that in some cases up to half of a brand’s online sales take place within five miles of stores.

Our data-driven approach to leasing centres on pricing space on the total transactional value across all channels. Whilst ‘store turnover’ remains a critical element of the value of a space to a brand – a rent must also reflect value from a fulfilment and brand engagement perspective.

The model also draws on a Google ‘cost per click’ approach, for an owner to charge an occupier for passing footfall and conversions. This method of ‘pricing visitors through the door’ will also create a more level playing field for online and offline retailers, whilst also providing those with an online presence to create a sense of consistency between the two strands of their business. By creating a data-first approach we can help brands understand the behaviours of their customers and help find and create a physical space that works for them.

Transparency

The pandemic has accelerated many changes in the real estate industry, and it has thrown into sharp relief the need for a new retail leasing model. Our new proposal for a data-centric approach will help create a transparency between landlords and tenants and a flexibility that doesn’t rely on the traditional zoning model.

Having a framework of data allows everyone to know where people stand, and we hope it will incentivise landlords to invest in a location in order to raise footfall and create an uplift in rental income. This is particularly true in shopping centres and estates where we can have oversight over multiple stores.

Following input to the structure of the new leasing model from our leasing, investment and valuation experts, we’ve been working with a group of landlords and occupiers to refine the model with a view to a larger roll-out next year.

If you would like to learn more about the model and how it works, please don’t hesitate to get in touch.

*This article is an extract from Colliers Winter Retail Report

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About the Author

With over a decade of analytics expertise, working at some of the UK’s best known retailers, Matthew Thompson leads the Retail Strategy service at Colliers - specialising in data analytics, consumer insight and real estate strategy. To get in touch, email Matthew.Thompson@colliers.com.