Iain Minto and Mark Stapleton of Sovereign Centros Discuss How the Owner and Occupier Relationship has Evolved Following the Pandemic29th June 2022
Sovereign Centros have always fostered strong occupier relationships, and this evolved further with the unprecedented closure of shopping centres due to the spread of Covid 19. It led to a fundamental shift in the relationships between owners and occupiers, particularly around improved communications and the sharing of information.
Says Iain: “Clearly there were some owners who continued to demand rents from retailers, despite the fact their income pretty much disappeared overnight. Overall, though, the Pandemic meant that that both sides had to work collaboratively to get through this difficult period. There had to be a much more open dialogue and open book approach to and understand of each other’s business models. This was particularly true for occupiers on turnover rents.”
He adds: “For us at Sovereign Centros, rather than focusing on blanket rent concessions, it was more about achieving a tailored and realistic outcome for both owners and occupiers. For retailers, they began to understand that many owners were also experiencing their own financial challenges while occupiers had to focus on both the business and the employees of their tenants – whenever possible, keeping good staff is imperative to ensure the long-term viability of the enterprise. It also makes good sense for us as it builds trust with the occupiers.”
Iain goes on to talk about two examples where occupiers have negotiated a commercially viable way out of the challenges posed by Covid. First up is the jewellery business Pandora who managed to renegotiate their lease after effectively closing the business during the first Lockdown. “They needed a rent-free period to get them back into a healthy position again once restrictions were lifted. In this case which was then added to the end of the lease.”
He then talks about how the Timpson Group agreed deals with their landlords to keep the business solvent. Where landlords wanted to play ‘hardball’, the company simply decided not to renew when the leases came to an end. “This is a great example of owners not seeing the long-term picture.”
Unsurprisingly, those shopping centres using an experienced retail asset manager like Sovereign Centros over the last two years will have benefited from their expertise as well as the ability to deal with the ever-changing and uncertain conditions that came with the Pandemic.
Asset Manager Mark Stapleton commented: “Our role is to create and implement effective business plans for our clients. Whilst these are fully structured, they also include a degree of flexibility which means we can adapt to changing circumstances, which is exactly what happened during the Pandemic.
“Using our detailed knowledge around the cashflow and assets of clients, along with the excellent working relationships we have built up with owners and occupiers, meant that we could advise on the most realistic and commercial-driven outcome for both sides.”
Mark continues: “This meant that none of our clients have had to resort to use the Government’s arbitration process contained within the new Commercial Rent code of practice which came into force in April of this year. We’ve been able to balance the business of the owners with that of the occupier to ensure there hasn’t been a need for arbitration.”
He notes though that for those organisations seeking this course of action, there still needs to be full disclosure about finances, which comes back to the point of being more transparent about the state of a business so a more realistic commercial decision can be made regarding possible rent concessions.
Looking towards the future, both Iain and Mark agree that there is likely to be an increase in the use of turnover rents which will further develop the owner and occupier relationship. As the retail market slowly recovers from the Pandemic, we are now facing a cost of living crisis which poses another threat to profitability, so it makes sense to have a more pragmatic approach to leases.
The asset managers also hope the enhanced levels of understanding and communication between occupiers and retailers will continue as ultimately everyone benefits including shoppers, staff and investors.