Turnover based rents

Retail landlords are turning to turnover based rents as retail markets shift the balance in favour of tenants with landlords bidding to attract and retain tenants.

As a result, lease negotiations are set to consider rent models based on tenant turnover.

Following the weakening of economic conditions, retail landlords across the continent adopted a range of lease concessions in a bid to retain and attract new tenants. These concessions include rent deferrals and rent discounts.

This trend is anticipated to have a long-term influence on retail rent models across the continent.

“The occupier is king. The balance of power between landlord and tenant is a perennially contentious issue, but in times of prosperity, it often lies more with the former,” said Stephen Springham – Head of Retail Research for Knight Frank

According to Knight Frank’s Africa Market Pulse Survey, the majority of retailers questioned indicated that they were open to considering turnover based rents with only 10% opposing such a model.

Rent discount levels varied by the scale of the impact that lockdown periods had on retailers with retailers who were able to continue to operate during lockdown receiving lower discount levels compared to those who were mandated to cease operations entirely.

“The pandemic has prompted something of a power swing towards the tenant, with rent deferrals, lease re-gears, and a push towards turnover rents increasingly commonplace,” said.

A retail asset, or indeed a whole retail market, is only as strong as the occupier base that underpins it.

“If nothing else, Covid-19 has provided a timely reminder as to the value of effective landlord/tenant collaboration, rather than counter-productive conflict,” added.

Turnover based rents allow tenants to control rental expenses when sales performance is low and allow landlords greater benefit when the tide turns.

Turnover based rents are calculated as a percentage of the tenant’s turnover generated from the premises.

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