FSP Retail Blog

Turnover Rents - A New Partnership?

Sharing turnover information has always been a sensitive subject for retailers, and as a result landlords are often unable to measure the effectiveness of their shopping centre or retail park by the most obvious means – sales. Entrant numbers are produced as a Key Performance Indicator but if an increase doesn’t convert to sales it is largely meaningless.

With new challenges come new opportunities. As market forces increasingly popularise turnover linked rents there is an opportunity to develop a new relationship between landlords and tenants based on real turnover performance.

However turnover rents have their complications. The argument that a rent linked to turnover shares the risk is a sound one, but only if both parties are fully conversant with the possible returns such an arrangement might provide. How to know what a specific shop will take and what is an appropriate turnover %? How to ensure that after adapting to the bad times, future success is also shared? The key data required are the likely turnover, the appropriate turnover % to be applied and the rent this is likely to generate. A retailer’s own sales estimate may be entirely genuine but does it take into account all of the catchment, spending and competitive information (hopefully) at the landlord’s disposal? Finally, what is to be done with the information derived from turnover deals which provide such a wealth of data? Often not enough. Turnover information is highly valuable in evaluating real centre or retail park performance and providing management with a means of looking hard at tenant mix and marketing strategies to ensure that they reflect current needs.

FSP has an extensive retailer database that includes accounts analysis to determine sustainable rents and sales information to assist with turnover estimates. By understanding the individual retailer model FSP can estimate potential turnovers by retailer for specific units and also advise on sustainable turnover %. FSP also works extensively with landlords to assist asset management in interpreting data and applying the knowledge gained to improve overall performance.

Turnover rents can link retailer and landlord in the quest for success and income, and may prove a powerful lever in building a fully functioning partnership. However, and with apologies to George Orwell, “all landlord/tenant turnover negotiations are equal but some are more equal than others”. FSP can help achieve the balance.

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