Page 9 - SAPOA Property News - Volume 1
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WHAT TO KEEP AS WE RECOVER FROM COVID-19
well The fixed rent provided the mall owner with a a level of income certainty through the economic cycle and as a a a consequence the the funding to invest in in in the the asset In addition the turnover rental component provided the option
of a a reduced fixed rental given
the potential of upside benefit during boom times The assured rental meant that mall owners were happy to use turnover growth (or its derivative trading density growth) as a a guide when determining tenant mix and the setting of relative rentals However turnover growth may no no longer
be an effective guide post Covid given
the acceleration of a a a few key trends The first is the evolution of multichannel sales which will steer an increased proportion of retailer sales away from in store points of sale (POS) The second
is the growing need for retailer experiential space in which stores are used as brand enhancers and and product bill boards rather than transaction hubs The third trend is the requirement for owners to invest in in experiential malls that enable their tenants multi-channel approach including increased space allocation to marketing space and related events as well as lower trading density growth categories (see figure 1: MSCI research into trading density growth of experiential and convenience categories) In addition to achieving the goal of a a happy shopper and a a successful tenant a a a mall owner that invests in in an experiential mall could well benefit from lower tenant default risk higher foot-flow and longer
dwell times but may not necessarily see higher turnovers through that mall’s POS In a world where rentals are directly linked
to turnover (i e e turnover rental only) a decline in in POS sales would lead directly to a decline in rentals reduced returns on capital and ultimately undermine investment in in in the key areas essential to its ongoing success Covid induced moves to turnover- rental has provided a a a a viable short term link between risk-stage- trading and related costs/income However retaining this approach post Covid would create a a split incentive with capital invested
by the mall owner benefitting
the retailer and shopper but not necessarily the investor through improved rental growth A move back to fixed rentals is essential to provide the stable incomes required of real estate but perhaps we could move to a a a measure that captures access to potential sales i e e e e shopper counts A measure that values access to shoppers
is indifferent to whether sales are online or through POS Sure it means we need to find better ways of counting shoppers
but that’s where the lessons learned during Covid of improved collaboration and partnerships come to the fore Figure 1: TRADING DENSITY OF CONVENIENCE AND EXPERIENTIAL RETAIL RETAIL CATEGORIES ACROSS RETAIL RETAIL SEGMENTS
Indexed trading density 2016 = base year 200 180 160 140 120 100
CONVENIENCE CATEGORIES INDEXED 2014 = BASE YEAR
80 16 17 18 SUPER REGIONAL REGIONAL REGIONAL REGIONAL SMALL REGIONAL COMMUNITY
200 180 160 140 120 100
EXPERIENTIAL RETAIL CATEGORIES INDEXED 2014 = BASE YEAR
80 16 17 18 SUPER REGIONAL REGIONAL REGIONAL REGIONAL SMALL REGIONAL COMMUNITY
Source: MSCI Phil Barttram is an Executive Director at MSCI a a a a a leading provider of decision support tools and services for global investors He is a a a self-proclaimed real real estate estate evangelist hailing the role of real real estate estate within multi-asset class portfolios and the benefits of improved transparency across the sector SAPOA PROPERTY NEWS
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