![#](https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FNew-business-models-different-retail-future-2-1.jpg?auto=format&crop=center&fit=crop&h=85&ixlib=php-1.2.1&w=210&s=256e00e529a7e01c27a16d6a15b53568 210w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FNew-business-models-different-retail-future-2-1.jpg?auto=format&crop=center&fit=crop&h=170&ixlib=php-1.2.1&w=420&s=23228a0bd7b500c53427054faa79af17 420w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FNew-business-models-different-retail-future-2-1.jpg?auto=format&crop=center&fit=crop&h=311&ixlib=php-1.2.1&w=768&s=b6c1dbe528c44290f5c616fc5343e59e 768w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FNew-business-models-different-retail-future-2-1.jpg?auto=format&crop=center&fit=crop&h=415&ixlib=php-1.2.1&w=1024&s=3939a8d4ecc539af81e666d975942fdb 1024w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FNew-business-models-different-retail-future-2-1.jpg?auto=format&crop=center&fit=crop&h=568&ixlib=php-1.2.1&w=1400&s=5e3ea9ae8567451acf1133d5f57418c6 1400w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FNew-business-models-different-retail-future-2-1.jpg?auto=format&crop=center&fit=crop&h=649&ixlib=php-1.2.1&w=1600&s=215294f86affbfeca6d458e99ff96619 1600w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FNew-business-models-different-retail-future-2-1.jpg?auto=format&crop=center&fit=crop&h=779&ixlib=php-1.2.1&w=1920&s=d64501e710f39102fc41538f40b9d343 1920w)
New business models for a different retail future
In May 2020, shopping centre rent collection among US REITs fell below 50%. In the UK, retail was hit even harder: just 13.8% of retail rent was collected in the quarter to June, falling to 12.7% by Q3 2020.
Although those numbers have since improved dramatically, uncertainty caused by the pandemic is reverberating through the sector. Brands want more flexibility while footfall continues to be volatile and unpredictable. As a result, landlords have started to look for innovative ways to keep income rolling in. Many of these will likely outlast the pandemic itself.
![#](https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FRevenue-splitting.jpg?auto=format&crop=center&fit=crop&h=210&ixlib=php-1.2.1&w=210&s=06c1e3ae941081cacc797af298cc6a04 210w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FRevenue-splitting.jpg?auto=format&crop=center&fit=crop&h=420&ixlib=php-1.2.1&w=420&s=c5b66fcc9ca9b947ff989a3825ad68bd 420w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FRevenue-splitting.jpg?auto=format&crop=center&fit=crop&h=768&ixlib=php-1.2.1&w=768&s=c5dec5d2445018f3beac73ee3ee4c9cf 768w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FRevenue-splitting.jpg?auto=format&crop=center&fit=crop&h=1024&ixlib=php-1.2.1&w=1024&s=2cb7aae1a5d98a9eea19efa284f7585d 1024w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FRevenue-splitting.jpg?auto=format&crop=center&fit=crop&h=1400&ixlib=php-1.2.1&w=1400&s=a9956c0423feb150cb6658ad7ed4c81f 1400w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FRevenue-splitting.jpg?auto=format&crop=center&fit=crop&h=1600&ixlib=php-1.2.1&w=1600&s=6b0d3af8a1e59e0cc9c343f2695e73e4 1600w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FRevenue-splitting.jpg?auto=format&crop=center&fit=crop&h=1920&ixlib=php-1.2.1&w=1920&s=61341c18c087f5482046aca11663a0a8 1920w)
Revenue splitting
Uncommon in the UK before the pandemic, turnover rents have become part of the discussion in recent years, according to Savills. Specifics will vary from one lease to another, but in general these agreements give landlords a certain percentage of a brand’s turnover (typically between 1 and 15%), allowing the tenant to better withstand fluctuating sales.
But revenue splitting is not simply about helping tenants weather the storm of uncertainty. With the acceleration of online shopping, brands are increasingly pivoting towards omnichannel retailing, with both physical and digital stores – and landlords are getting involved.
As landlords ramp up efforts to support tenants’ online activity – for example, by also offering logistics space – they will expect to share some of the windfall from internet sales. Panellists at the roundtable argued that landlords will expect to share some of the windfall of internet sales, particularly as they ramp up efforts to support tenants’ online activity – for example, by also offering logistics space.
The panellists also argued that even in markets where online shopping hasn’t yet taken off as it has in the UK, such as the Australian market, shopping centres should incorporate logistics space to serve occupiers’ needs as they grow. By sharing online revenue, both landlords and tenants can benefit.
![#](https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2Fflexibility-2.jpg?auto=format&crop=center&fit=crop&h=125&ixlib=php-1.2.1&w=210&s=43fbe74e2e7dfbd6305a89513cab47f5 210w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2Fflexibility-2.jpg?auto=format&crop=center&fit=crop&h=250&ixlib=php-1.2.1&w=420&s=d92bd0bcca5cada7f13c0eb8d6d89921 420w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2Fflexibility-2.jpg?auto=format&crop=center&fit=crop&h=457&ixlib=php-1.2.1&w=768&s=aa70157e451f0c55fd4a5412cf223624 768w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2Fflexibility-2.jpg?auto=format&crop=center&fit=crop&h=609&ixlib=php-1.2.1&w=1024&s=498815672a57d98b269a135261fc905e 1024w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2Fflexibility-2.jpg?auto=format&crop=center&fit=crop&h=832&ixlib=php-1.2.1&w=1400&s=46ad54a8afca3735ee8868dbe89adf27 1400w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2Fflexibility-2.jpg?auto=format&crop=center&fit=crop&h=951&ixlib=php-1.2.1&w=1600&s=daabd02b8156fa58860e8cd6feac5db2 1600w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2Fflexibility-2.jpg?auto=format&crop=center&fit=crop&h=1141&ixlib=php-1.2.1&w=1920&s=b1f2f01eca12cd6cc6f466fd10af8ffe 1920w)
Flexibility
Brands want short-term but extendable leases – ones measured in days or weeks, rather than months. According to retail leasing platform Appear Here, that has been a feature of previous downturns, but flexibility is expected to stay. Conversion times have been accelerating for several years, and in 2020 nearly half of bookings were completed within three days of a request, according to the company.
Occupier needs are shifting the market towards more flexibility. Brands do not want to commit to long-term leases, but they do still want their physical space. As with revenue sharing, there is also an upside for landlords: according to the same research by Appear Here, flexible spaces can generate as much as 43% more revenue than traditional rent.
Shanghai has seen this trend play out successfully at TX Mall, where pop-ups are the foundation of the space’s strategy. The mall gives popular online brands a physical environment with a three-month rent-free period in return for a percentage of sales. Last year, it attracted 5,000,000 visitors.
![#](https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FMulti-use-space-2.jpg?auto=format&crop=center&fit=crop&h=150&ixlib=php-1.2.1&w=210&s=971f5899b1ff6920c4f89dec86b3e074 210w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FMulti-use-space-2.jpg?auto=format&crop=center&fit=crop&h=300&ixlib=php-1.2.1&w=420&s=7f73242e8e4c7b1e13f64e99ab1ad60b 420w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FMulti-use-space-2.jpg?auto=format&crop=center&fit=crop&h=548&ixlib=php-1.2.1&w=768&s=6f77a837015381eccbee767c5761fc64 768w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FMulti-use-space-2.jpg?auto=format&crop=center&fit=crop&h=731&ixlib=php-1.2.1&w=1024&s=4282067f93a669900ea558a9a3b0e960 1024w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FMulti-use-space-2.jpg?auto=format&crop=center&fit=crop&h=999&ixlib=php-1.2.1&w=1400&s=b0bd31746dbe5a73e9e0373e822de076 1400w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FMulti-use-space-2.jpg?auto=format&crop=center&fit=crop&h=1142&ixlib=php-1.2.1&w=1600&s=74ce66786e416dd654d56dba671d4806 1600w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FMulti-use-space-2.jpg?auto=format&crop=center&fit=crop&h=1371&ixlib=php-1.2.1&w=1920&s=b2d660fcbc758c4c7556efeea293006a 1920w)
Multi-use space
At the roundtable discussion, one panellist said that if landlords are going to succeed, they have to be open to working with tenants who are creative in how they use space. They said they are looking at retailers that do several different things depending on the time of day.
That means the space can potentially be used for more hours of the day than it otherwise would – for example, by switching from a co-working space during the day to a bar in the evening.
Mixed-use in the more traditional sense can also be a hedge for landlords. Retail in mixed-use developments commands a rent premium, but even in places where that premium is low, retail can play a role in making the entire development more attractive. People want to live in places close to where they work, shop and socialise. Offering the right mix of retail can, therefore, boost rent in safer, more predictable parts of a development, such as its residential space.
![#](https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FInvesting-retail-tech-1.jpg?auto=format&crop=center&fit=crop&h=210&ixlib=php-1.2.1&w=210&s=00a24eab8d6dc2479f2c736d86685e57 210w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FInvesting-retail-tech-1.jpg?auto=format&crop=center&fit=crop&h=420&ixlib=php-1.2.1&w=420&s=8105254ec824e9da166d8e8c4fcc8a16 420w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FInvesting-retail-tech-1.jpg?auto=format&crop=center&fit=crop&h=768&ixlib=php-1.2.1&w=768&s=bc74cacb1a60a62fcc037beeb8a09cc2 768w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FInvesting-retail-tech-1.jpg?auto=format&crop=center&fit=crop&h=1024&ixlib=php-1.2.1&w=1024&s=b3ea749f23bcd9bfdc1aec951c78d1d1 1024w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FInvesting-retail-tech-1.jpg?auto=format&crop=center&fit=crop&h=1400&ixlib=php-1.2.1&w=1400&s=162c79d0a3e0235d9a89df44d11ee043 1400w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FInvesting-retail-tech-1.jpg?auto=format&crop=center&fit=crop&h=1600&ixlib=php-1.2.1&w=1600&s=e6327273215b9d6b240911307d64fb95 1600w,https://make-arch.imgix.net/https%3A%2F%2Fwww.makearchitects.com%2Fwp-content%2Fuploads%2F2022%2F05%2FInvesting-retail-tech-1.jpg?auto=format&crop=center&fit=crop&h=1920&ixlib=php-1.2.1&w=1920&s=65af7097fa3f7376d9601d3c1695f611 1920w)
Investing in retail tech
Regardless of how retail will change in coming years, businesses in the sector will have to be able to keep up and adapt. For Marks & Spencer, that meant teaming up with start-up accelerator Founders Factory in 2018 in a joint venture to identify and support innovative businesses.
In the first year of the joint venture, the partners invested in start-ups that did everything from offering customers portable power banks, to creating a marketplace where farmers could sell surplus produce.
As the retailer’s chief digital and data officer, Jeremy Pee, said at the time, Marks & Spencer’s involvement would enable it to “work with and learn from disrupters and not be disrupted". The message is clear: in a time of changes, adaptation is necessary for retail success.
Our thanks to:
Albert Chu
Claire Hepher-Davies, The Crown Estate
David Waldren, Vicinity
Joanna Russell, Frasers
James Hepburn, Ipswich Council, Queensland, Australia
Lucy Puddle, Grosvenor
Paul Husband & Vicky Li, Husband Retail
Stuart Harris, Milligan
Make Retail portfolio