Colliers lays out “radical” new plan to tackle CVA crisis

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CVA landlords

Colliers International has proposed a radical new plan to tackle the challenges currently facing the retail industry, which have led to the most adverse trading climate since the financial crash.

The property consultancy firm’s response to the growing pressure from internet sales, business rates rises, and stark jump in CVAs is a plan which aims to transform property leasing strategies.

Recent high-profile retail casualties like House of Fraser, Mothercare, Toys R Us and Maplin have all cited inflexible long-term leases and shackling store estates as key reasons for their demise.

In light of this Colliers has proposed a five-point plan to create a fairer playing field for both landlords and retailers, calling for:

  • Standard five-year leases granted outside of the 1954 Landlord & Tenant Act
  • Rents based purely on the turnover achieved by the retailer in a particular shop
  • Mutual options to break the lease dependent on agreed turnover thresholds
  • A ‘white box’ approach to shop specification where a basic fitted unit is made available to the retailer to minimize their fit-out
  • Limited incentives/ rent free

“The property industry now needs to think about a radical reshaping of the lease model for much of our retail property,” Colliers’ co-head of retail Dan Simms said.

“These types of lease features are relatively common in the retail factory outlet environment but have not been brought in a structured way into the mainstream market. They create genuine alignment between landlord and occupier, and offer both the opportunity to flex rents and occupation of space.

“This isn’t just blue sky thinking. This model won’t be relevant to some circumstances, particularly in fragmented ownership high streets and for flagship stores but there are an increasing number of similar leases being agreed across the UK and we are close to launching a leasing campaign for a new mall redevelopment within a well-established shopping centre where all leases will be offered on this basis.”

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2 COMMENTS

  1. Flexibility to break from leases based upon a turnover threshold not being reached would dramatically reduce the risk of opening new shops for smaller retailers, where the risk of being tied into an unprofitable lease over a long period is often too high to justify opening new shops, despite the potential reward.

  2. The article is interesting but is absolutely nothing new. As letting agents in the Motorway Service Area market we have been adopting this approach for well over a decade. However Colliers are very wrong about short leases and break clauses and are fostering a dangerous precedent. No long term income , no development. Most retailers are happy with long term leases and a % of turnover as “total occupancy costs” negates the need for a short lease and/or a break clause.

    We have coined the phrase “maximum affordable rent” and have been applying it for years. Valuers don’t like it because they don’t understand it and Retail Agents don’t like it because it means that they have to learn a whole new skill of understanding tenants P & L. Turnover based rents are in my view a key weapon in saving Town Centers.

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