On Tuesday the Association of Real Estate Funds' (AREF) Future Gen Group held a topical panel discussion on the future of retail lettings. We heard from Harry Pickering of Schroder Real Estate about the increasingly polarised retail sector and how those offerings that are neither dominant nor convenient will struggle in the current climate.

The market for retail space has been affected by changing consumer demand. There have been two apparently divergent trends. The first is the growth of online shopping. The second is the increasing frequency of convenience shopping. Interestingly, research by Waitrose has shown that two thirds of Britons visit a supermarket or convenience store at least once a day. The implication for retailers and retail property landlords is that bricks and mortar shopping needs to either add more to the experience than buying online, or provide a level of convenience that online logistics cannot yet match.

The panel, comprising Harriet Pendlebury from Boden, Melanie Brown from UBS Asset Management and Isabelle Hease from Ellandi considered how landlords and retailers can improve their offering, and the possible implications for real estate strategies. Some of the interesting suggestions included:

  • The importance of investing in experiential retail as a shop window for the retail brand. This may include more frequent refurbishments of stores, in store evening events or diversifying the use of retail premises with craft classes or pop up bars. The panel also noted smaller steps that some retailers were taking to improve the shopping experience, such as curating the music and smell of shops and improving staff training. The panel also suggested more landlord-led promotional events across shopping centres or estates.
  • Harvesting more data on shoppers to tailor the consumer experience. The panel advocated more open collaboration between landlords and retailers, to ensure that data is used to optimise the use of space. Tania Barnes has previously considered the data that a building may yield here.
  • Innovating to improve convenience. The panel noted the importance of the more traditional aspects of convenience shopping, such as free parking and proximity to major road networks, but they also commented on new developments. For example, enabling customers to purchase items in-store on mobile devices to avoid queues.

These developments may be reflected in the drafting of retail leases in the following ways, such as:

  • For turnover rents, the calculations should be clear about whether "click and collect" items, any online sales made in store and returns of online purchases should be excluded or included. 
  • The tenant covenants may include requirements to share data. The parties will need to consider what level of data sharing is expected and appropriate.
  • The opening hours may need to be extended or made more flexible to allow retailers to hold evening promotional events. Equally, the hours for landlord services may need to be more flexible.
  • Tenants may require more flexibility within the permitted use and alienation provisions to allow for a diversification of the customer experience, for example, for pop up bars, classes or concessions.

These are initial steps to help both landlords and retailers meet the needs of cash-rich, time-poor shoppers. Overall, and as a takeaway from Tuesday's discussion, there is clearly a drive from all parts of the supply chain, from funds to retailers, to help retail premises deliver for the modern shopper, amidst a rapidly changing market.