Since the digital age began, models for computing the rent for retail spaces have remained basically unchanged: lease agreements provide for a base rent while high-traffic locations as in, for example, shopping centres, provide an additional component dependent on revenue.
Online commerce disrupts the commerce landscape
Physical retail spaces are currently losing business and revenue. It is becoming therefore more difficult for lessors to let retail spaces profitably.
The growth of online retail prompts the question of whether and how sales via the Internet should be accounted for in the computation of rent, both base rent and sales-based rent – for example, when goods are ordered on the Internet but retrieved from a specific store.
"The fact is that the Internet as an additional channel of shopping will, so to speak, add more fuel to the fire for unattractive leasing models. At the same time, it can represent new opportunities for attractive and creative leasing models", Peter Oberlechner, Partner and Head of Real Estate Law at Wolf Theiss, summarised. He says that the retail lease agreements of the future would have to reflect this.
"Revenue losses in traditional, stationary retail are having effects on sales-based rent. Lessors are therefore under just as much pressure as renters to make shopping an interesting experience. These new challenges should be taken into consideration in contracts", said Birgit Kraml, Counsel and expert in tenancy law.
"Physical" retail spaces are increasingly in competition with virtual ones. Simply providing space in retail areas is usually no longer adequate: not only must the space be in an attractive location, the leasing model offered by the lessor must be fair and attractive and simultaneously competitive on the virtual marketplace in the Internet, which is open to both retailer and consumer 24 hours a day. In the future, factors such as the number of customers the lessor brings to the renter – the so-called 'footfall' – will have to be taken into consideration," say the Real Estate experts at Wolf Theiss.