Changing tenant covenant perceptions and flexibility in the lease model in UK city centres

Orr, A. M. , Gardner, A., Jackson, C. and White, J. T. (2023) Changing tenant covenant perceptions and flexibility in the lease model in UK city centres. Journal of Property Research, 40(1), pp. 1-24. (doi: 10.1080/09599916.2022.2057866)

Abstract

The retailing industry in the UK is experiencing unprecedented structural change. The impact on retailers has often dominated headlines, along with the impacts on local services and economies, but with little attention given to the implications for property owners and practitioners. Exploring and understanding the responsiveness of landlords, and their behaviours, is essential to understanding the adaptiveness of a retailing system. This study employs semi-structured interviews to examine the short- and long-term changes in the retail market and the actions of landlords in response. The findings span the period prior to and during the first year of the Covid-19 pandemic in 2020, and reveal that fundamental changes have occurred to establish tenant covenant norms and the traditional retail leasing model. The paper explores these changes, including a shift in tenant risk, reposition of the leasing model in favour of tenants, generally, and greater application of turnover rents. The pressing challenge for current valuation practitioners, therefore, is to incorporate these fundamental changes within the market into the pricing of retail assets. Significant progress in this area to date, as explored in the paper, has been limited although greater application of discounted cashflow techniques is set to be encouraged by the RICS.

• Item Type: Articles
• Keywords: Retail market, lease model, turnover rents, tenant covenant, retail pricing.
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Gardner, Dr Alan and White, Professor James and Orr, Dr Allison
• Authors: Orr, A. M., Gardner, A., Jackson, C., and White, J. T.
• Subjects: H Social Sciences > H Social Sciences (General)
• College/School: College of Social Sciences > School of Social and Political Sciences > Urban Studies
• Journal Name: Journal of Property Research
• Publisher: Taylor and Francis
• ISSN: 0959-9916
• ISSN (Online): 1466-4453
• Published Online: 03 April 2022
• Copyright Holders: Copyright © 2022 The Authors
• First Published: First published in Journal of Property Research 40(1): 1-24
• Publisher Policy: Reproduced under a Creative Commons License

Project Code	Award No	Project Name	Principal Investigator	Funder's Name	Funder Ref	Lead Dept
300058		Real Estates Adaptation and Innovation within an Integrated Retailing System	Allison Orr	Economic and Social Research Council (ESRC)	ES/R005117/1	S&PS - Urban Studies