Small retailers risk losing out on unprecedented incentives from landlords as demand for shop space picks up

Small independent retailers need to move quickly or risk missing out on unprecedented financial incentives being offered by landlords to take space in shopping centres, says NB Real Estate, the leading commercial property agency.

NB Real Estate says that the improvement in consumer spending over the key Christmas shopping period will raise competition among retailers for space. This will accelerate the process, which is already under way, of landlords withdrawing ‘once in a lifetime’ financial incentives being offered to small, independent shops to take space in shopping centres.

Data obtained by NB Real Estate shows that demand for retail space has jumped by 57% over the course of 2009. There were on average 505 searches for retail space per month in the UK in Q3 09, compared to 321 at the start of the year (Q1) (source: Focus).

NB Real Estate says that although not all these searches for new space will translate into new lettings it does suggest that some confidence is returning.

NB Real Estate says that in recent months landlords have been offering small retailers the following incentives to encourage them to take space in shopping centres:

• Rent free periods to of up to nine months (Rent free periods of just three months were typically offered in previous downturns)
• Paying service charges, rates, fit-out costs and insurance on behalf of small retailers
• Granting small retailers very short leases of one year to 18 months instead of typical leases of 10 or 20 years

According to NB Real Estate, these kinds of incentives were previously only ever offered to large retailers, but the severity of the recession has seem landlords extend incentives to small independent shops.

Richard Williams, Executive Director of Client Services at NB Real Estate, comments: “It’s unprecedented for shopping centre landlords to offer these kinds of financial incentives to small independent shops. With the market now turning the corner these deals are being taken off the negotiating table. Small retailers contemplating expansion should consider agreeing terms with landlords now, or face potentially higher costs in the near future.”

“Tactically, it is better to let space before the recovery gets into full swing.”

“Last Christmas some shopping centres had four or five retailers go into administration, so landlords have been looking for creative ways to help small shops trade through the tough economic environment.”

“Landlords want to keep their major rent-paying tenants happy and that means ensuring that footfall through their centres is high. Half empty shopping centres can harm big retailers as it inevitably means fewer shoppers.”

He adds: “This is partly being driven by empty rates, which are a significant additional cost that landlords did not have to shoulder during previous recessions.”

According to NB Real Estate, with banks unwilling to lend to small independent retailers to fund their expansion, shopping centre landlords are stepping in to help these retailers grow.

Richard Williams says: “There has never been a tougher time for small retailers looking to expand. With banks unwilling to lend, and with energy costs and the minimum wage rising, landlords are being innovative in finding ways to get less established retailers into their shopping centres.”

NB Real Estate says that there are several reasons why landlords are now prepared to offer financial assistance to small independent retailers to occupy space which would otherwise remain unlet:

• The introduction of business rates for empty shops in April 2008 means that landlords must now pay rates on unoccupied units
• Landlords are keen to reduce service charges for their key retailers by spreading maintenance costs among the highest possible number of tenants
• Landlords want to keep their centres fully occupied to boost shopper numbers for major rent-paying tenants
• Empty units can adversely affect a shopping centre’s capital value
• Empty units could encourage existing tenants to ‘play hardball’ with their landlord in the knowledge that their landlord has a weak negotiating position

source : NB Real Estate