The relationship between retail landlords and tenants is set to change forever after the Covid-19 pandemic, according to Thai real estate executive Jariya Thumtrongkitkul.
“Retail landlords and tenants’ co-operation will become more crucial than ever before,” says Thumtrongkitkul, who is head of advisory and transaction services – retail at CBRE Thailand.
“Both sides will now consider more realistic rents and flexible leasing terms and conditions depending on retail business and sizes. Partnership rents and percentage revenue sharing are preferred options of these co-operation rather than fixed rent.
“Even though this will make the retail market more sophisticated, it is the most realistic approach going forward in the new normal era,” she says.
The sudden arrival of Covid-19 has highlighted the drawbacks of fixed-rent lease agreements, where tenants do not disclose their transactional data to landlords: while the latter could always predict their income from one month to the next, tenants were exposed to uncertainties of income due to uncontrollable circumstances, which could include anything from social unrest, pandemics or factors seriously impacting either tourist or local consumption patterns.
Social distancing’s impact
Thumtrongkitkul says developers face a new challenge in restoring customer confidence in safety, engagement and appetite when visiting shopping centres. This may force changes in the way retail space is used, she argues.
“As social distancing becomes the new normal, shopping centres will likely to provide more semi indoor-outdoor areas where customers can enjoy fresh air, various temporary spaces for pop-up stores or unique retail formats and additional recreation areas like green space, outdoor seating, pet-friendly areas, auditorium space, rooftop space and jogging lanes.
“These new landmark and other signature areas of the shopping malls will flourish as additional points to boost customers’ engagement and confidence in safety, and create positive and unique shopping experiences in those malls. CBRE believes hygiene and cleanliness will also be one of the retail design principles and touchless technologies which reduce direct surface contact such as automatic toilets, entrance door sensors, and automated parking will be heavily introduced as a result of social distancing.”