Retail Leases Post COVID19 Shutdown
As a retail designer I approach retail from both the customer’s and designer’s views.
I wear both hats, which is probably why I love the retail industry. Some days I am a shopper and other days I am in work mode. Yet I can never quite separate them.
In the early weeks of COVID19 retail reopening, I visited my local Westfield to buy birthday gifts for a family member. My experience was a shock to the senses. Driving into the multi-level car park I was met with whole areas of darkness due to no lighting and frankly quite scary and surreal. No red/green parking monitor lights were switched on anywhere.
When I entered the centre my immediate impression was of an abandoned American shopping mall. Every 2nd ceiling coffer was switched off, only half of the general ceiling lights were on and being early stages of the isolation lifting the actual retailers open for trading was around half the centre, which all worked together to create a very low ambient lighting level. It was dark, deserted and very unconducive to shopping.
Post COVID19, is and the recovery brings a double-edged sword for retailers that will make the industry assess what future retail may look like. Rewind 12 months and who could fathom that the world would almost shut down and industries would grind to a halt? Neither retailers nor landlords had contingency plans for this.
With hindsight of this pandemic experience, retailers will have new considerations and questions when it comes to lease renewal or a new lease. New clauses may cover issues such as:
- What rent relief would be available if the shopping centre shut? The difference between federal and state recommendations for public health and isolation lock downs and the decision by which body will determine when these rental reliefs are instated.
- The clarification of the centre remaining open for essential service retailers such as grocery and medical vs non-essential retail closing. Associated restrictions such as the original 30 min hairdressers’ rule, which was deemed as essential services, but unworkable.
- Rent relief based on a staged recovery with some retail industries such as cinemas having to wait till the later stages for opening and meterage occupancy rates imposed by the government and whether this can be stipulated into lease contracts for cinemas and restaurants. Currently some restaurants are voluntarily not opening because the permitted number of patrons does not make it financially viable.
- Food operators switching to take away, which whilst permitted by government mean that no customer base within the shopping centre make their business worthless. Same with food court operators; their business structure technically remains the same, but their customer base is now gone, and food court seating is now prohibited.
- Industry differentiation such as travel agents. Even when the retail sector has returned to full operating this industry most likely will still be operating in an extremely limited scope with international and possibly interstate travel forbidden by the government. Will there be rent relief or different trading hours negotiated while other retailers are gradually increasing their business?
- Whether rent relief becomes available by using the overall customer count on a weekly and daily basis once it drops by a specified percentage and implementing this statistic into the lease. After all, one of the promoted benefits of being a tenant in a large shopping centre is that the centre is the destination and attracts the customers.
- Can an enforced shut down add a grace period to lengthen a lease or extend the timing for a fit out refurbishment?
- When isolation and shutdowns are lifted by the government what obligations and assurances will the landlord implement? Will they have all lighting in the centre and car-parks working? Will all public restrooms be open and fully illuminated? Will the ambient music throughout the public areas be in use? Will the concierge desks be staffed, and touch screen information panels be activated? Will cleaning/ servicing and maintenance be fully implemented of all areas, restrooms, public areas, internal and external? Will all illuminated signage (excluding individual shops) being switched on? Will all these services be offered for the same hours as prior to close-down?
This new path will bring cyclical implications, some which may not have been considered yet.