“We both have the same goal – we are looking for solutions that help both parties – owners and tenants – to adapt and survive in the new reality, rather than just maximising profits,” insists Anna Polak, the head of leasing at Master Management Group, in an interview with SCF News / Retailnet.pl
The LPP Group has announced that it plans to withdraw from lease agreements covering almost 30% of the space it currently occupies. Other tenants have taken similar steps. What room is there for negotiating lease contracts in this kind of situation?
For landlords, there have been serious financial and organisational consequences from the imposition of the lockdown on tenants. Additionally, the regulations included in the government’s Anti-Crisis Shield business support package, which were mainly focused on helping tenants, have exacerbated the situation. In my opinion, lease withdrawals have significantly widened the negotiating positions of both parties, mostly to the landlord’s disadvantage. As a result, it has become impossible to hold equal and open discussions.
After the ban was lifted on operating in shopping centres, we received proposals for new terms from many tenants for further cooperation. But it’s too early to comment on such long-term mutual obligations.
There have also been tenants who decided to pull out of their lease agreements in some of our centres. We are aware that the closing of the stores has made it impossible for tenants from the fashion segment to generate the income needed to finance purchases that they have already committed to, and catering and other services will also be unable to make up the losses they have incurred during the pandemic.
So how have your talks been going with tenants about the form their leasing contracts will take?
We have the same goal: to find solutions that will enable everyone – both owners and tenants – to adapt and survive in the new reality, rather than just maximising our profits. But for certain there’s one thing we are going to do: act calmly and without making rash decisions in order to overcome the challenges we currently face. And the experience we both gain along the way will allow us to cooperate even more effectively, resulting in a more rational leasing market in the future.
In terms of the coronavirus situation, we are not going to re-negotiate leases that are currently in force. First of all, we have to consider all the lease extension offers that tenants are obliged to present us with, and only then we can move on to negotiations and final agreements between both to continue the cooperation.
Based on our experience, in the situation we are in I expect that both tenants and landlords will try to introduce provisions that secure the interests of each party in the event of similar circumstances in the future. I hope that after recent events we will manage to maintain our common sense and that negotiations will not lead to absurd modifications to the content of contracts drawn up in recent years.
For many shopping malls, the current situation could result in a loss of financial liquidity...
Certainly, the lack of rental income is an extremely difficult issue for owners. Rents are the main source of income for shopping centres, as they pay for, among others, the maintenance costs, the tax, the investment loans taken out during the development process and employees’ salaries.
For the moment, we certainly can’t talk about there being any loss of financial liquidity; but despite the clear decisions we have made, for example in the form of limiting planned projects, it’s still difficult to say what the scale of the losses will be in the long term after the re-opening of the centres.
But one thing is for sure: the market won’t be the same as it was before the coronavirus.
The situation Covid-19 has plunged us into, and which we’ve had to face since mid-March 2020, is unprecedented and has thrown up many unexpected challenges.
Certainly, the shopping centre market will have undergone changes in many areas.
Social distancing and the sanitary regimes that have been imposed will have had an impact on consumer behaviour, shopping centre visits, shopping preferences and purchasing power. This can already be seen in the temporary decline in tenants’ turnover and, as a result, this will lead to temporary changes to the terms of our contracts.
Since we are living in such uncertain times, future incomes and costs are unknown factors. However, we believe that if common sense prevails, then due to the trust and relationships that have formed between us we will be able to achieve a common understanding and survive the crisis. Right now our common goal is to cooperate fully with tenants to rebuild and restore things back to their pre-pandemic market situation.
As we are talking it is now one week after shopping centres were allowed to re-open. What has emerged from these first few days?
MMG’s portfolio comprises nine retail formats, including convenience centres, larger shopping centres and retail parks – with each centre having an area of less than 20,000 sqm gla. We can therefore comment on the trends we’ve been seeing in small centres located in the outskirts as well as those that are the dominant shopping centres in cities with up to 100,000 inhabitants.
The footfall figures from the first few days are close to those recorded before the pandemic. The traditional centres in our portfolio have been enjoying very good traffic, while retail parks and centres with a dominant grocery operator have shown slight declines of around 10 pct. However, one pleasant surprise is that after undertaking a detailed analysis, the turnover in our centres looks quite promising. Tenants are reporting that the majority of visitors to their stores have been making purchases.
It is worth noting that the percentage of visits related to particular shopping categories has changed. It perhaps should come as no surprise that the most popular items in shopping baskets have included home, garden and interior goods, as well as selected footwear and sports brands.
The centres in MMG’s portfolio are situated in medium-sized towns and cities. According to some experts, such locations have found themselves in the most difficult situation. This is for two reasons. Firstly, rents there tend to be over-priced. Secondly, because the local purchasing power is likely to undergo a greater decline than in other types of location. Would you agree with this?
It’s certainly true that our projects are in medium-sized cities. Last year, however, we were very active in the re-commercialisation of our centres, which enabled us to revise and align their rents with the market level as it was before the pandemic. Of course, as centres re-open there will have been an impact on projected budgets. But I believe that this is going to be an issue for all landlords and the location of a centre has no bearing on it.
Our portfolio is made up of dominant centres in smaller towns and cities. We are convinced that what they offer, which has been carefully selected to match the needs of their local markets, will continue to attract shoppers, even at a time when experts are predicting declines in consumption and purchasing power. We expect that consumers in smaller towns and cities, unlike those in larger urban centres, won’t suddenly switch their shopping habits entirely to online retail and that they will remain faithful to shopping in traditional shopping centres.
Stimulating demand is going to be crucial. How should a manager go about doing this?
We can approach this issue from several angles – from the context of the operational management of the centre and from all the activities concerned with the communication and brand-building strategy for the centre. In both cases, the challenge is to carry out such activities from a closed centre, which, from the customer’s perspective, is perceived as a potentially hazardous place to be during a pandemic. There has been a huge shift in purchasing behaviour and there is now increased caution about being in crowded places, which will have an impact on many areas of retail.
Therefore, the first step we have taken in all our centres is to implement all the standards recommended by the Chief Sanitary Inspectorate and the World Health Organization. The next step has been consistent communicating to shoppers that we are fully ready to re-open. Taking care of consumers and ensuring their peace of mind are now key, because this helps to build confidence, which in turn translates into more purchases – or in other words, greater demand.
However, we can’t know for sure what is going to have the most decisive impact on consumer behaviour. In a survey carried out ten days ago, consumers stated that their greatest concern was over safety, and therefore there was a relatively low number of respondents who claimed that were now ready to start visiting malls again. But despite this, footfall has turned out to be surprisingly high.
That’s true. Nevertheless, in our opinion demand is now governed by different rules and consumer requirements have changed considerably. Previously, consumers just left the house to go shopping whenever they felt the need, and mostly just took into account the store’s location and range of products. Now the main criterion need is a sense of security and the removal of such problems as anxiety, isolation and boredom. For this reason, our communication strategy is now focused on health protection and enhancing the image of our centres, which we are promoting under the slogan #dbamyoCiebie [“We care about you”]. The focus is on putting out positive content and a credible message on social media and in each centre. This doesn’t mean that we are no longer going to be launching sales campaigns; rather that we have transferred them to social media – where we can reward customers for shopping with us, but at the same time educate and ask them about what they find boring, while also encouraging our tenants to join in. As the brand of the dominant centre in the city, our activities have to show how responsible our business is and that we are genuinely committed to addressing social issues. For example, in Ełk and Kutno as soon the pandemic started we set out to earn the trust of our customers – and so when we were asked for support, these pleas were not ignored. We have been supporting the local medical services and blood donation centre by providing them with masks and other protective gear. These activities have now taken on a life of their own and, with the help of our creative communication strategy, the result has been to stimulate demand.