// Hammerson reveals new approach to UK leases
// It will pilot its new approach at Union Square centre in Aberdeen
Hammerson has revealed a new approach to its leases in the UK, which will see it offer shorter contracts and scrap traditional rent review systems.
The new approach focuses on four key areas: more flexible leases; rebased rents at more affordable levels, replacing the existing rent-review system with an index and an “omnichannel top-up element”.
The property giant will trial the new approach at its Union Square centre in Aberdeen before rolling it out across its entire portfolio.
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The landlord expects all leases to be converted by 2023.
“The lease structure in the UK particularly has not been fit for purpose for some time,” Hammerson UK and Ireland managing director Mark Bourgeois said.
“Retailers themselves are loud and clear in telling us that change is required and a lot of deals that we’ve been doing over the past year or so have had elements of what we’ve now announced.”
Flexible leases could take a similar approach to continental Europe with options of three, six, and nine-year lease breaks.
“This enables the tenant to derisk their position as if the store is not trading well they can exit, and similarly for a landlord we can make sure we’ve always got the best optimal brand mix,” Bourgeous said.
“It gives us the stability to change people in and out as well rather than waiting 15 or 20 years to do so.”
Hammerson intends to rebase its rent with reference to “the affordable operating margin structure of that particular business”.
It said it expected the change will bring a 15 per cent reduction from its current rent levels.
Finally, the landlord plans to introduce an “omnichannel top-up element” to recognise the changing role of a store in a retailer’s business.
This could include linking rent payments to click-and-collect sales to ensure a share in internet revenue.
Earlier this week, Hammerson announced plans to raise more than £825 million through a capital raise and the sale of its 50 per cent stake in European outlet operator Via Outlets, in an effort to shore up its balance sheet.
Hammerson’s net rental income dropped 44 per cent to £87.3 million for the six months to June 30, while adjusted profit declined by a colossal 84 per cent to £17.7 million and its portfolio value dipped by eight per cent to £7.6 billion.