H&M's turnover-based rents

All,

A stroll down the high streets of west London alone confirms the dire state of British retail. Shop fronts remain boarded up for years now, clearly unable to find a tennant in a market with static supply and ever decreasing demand.

As apparel retailers continue to face difficult times in the UK, we see negotiation lines shifting between retailers and their landlords. Following a string of CVAs, retailer have been touting the introduction of turnover-based rents.

Notably now, H&M have begun introducing these features, offering “total occupational rents” linked to the turnover of the site. Landlords are then “free” to divide the sum between service charge, business rates and rent - the obvious variable.

While H&M’s most recent demand of subtracting online-returns from these total occupational rents has been seen as a step too far, floating rents could become more common place and help siphoning off the retail pain into the real estate market.

On balance we see these developments as positive for other UK retailers - including our positions in New Look, Matalan and Iceland.

Wolfgang