id last year. CBRE’s director of retail brokerage, Leif Olson, who worked on Tesla’s Martin Place lease in Sydney, says something needs to be different. “With Tesla, [the landlord] isn’t actually capturing sales because customers are going to an iPad to order things. You don’t physically make the transaction in-store,” Olson told IRW. “Then there’s click-and-collect. Landlords do great marketing and drive footfall through the centre, but [they] don’t actually capture that,” he continued. The art of the deal gets a makeover George Wragge, director of retail leasing at Colliers International, told IRW he is currently negotiating a lease with a major supermarket that includes items purchased online and picked up in-store as part of the turnover rent paid to the shopping centre. This is a sharp departure from how turnover rents have been calculated in the past, but Wragge says it only makes sense given the way people shop today.   “Retail landlords want to maintain a good customer experience and retail space, but also to make sure they’re capturing the [total] volume of sales…that can be attributed to that centre,” Wragge explained. Tesla showroom at Martin Place “The amenities the customers are using, the delivery trucks coming in…those are still creating wear and tear for the centre,” he added. Wragge says that whilst basic negotiation and lease clauses remain unchanged, a variety of new metrics are popping into agreements, as landlords work to deal with the new shopping environment and retailers utilise online portals to come to negotiations as a more informed party. The ability of centre operators to collect better data on customers in general is likely to be an important part of their business model going forward, especially if landlords struggle to get retailers on board with digital revenue sharing. Ferrier Hodgson’s retail specialist, James Stewart, doesn’t think it will be easy for landlords to get a piece of a retailer’s’ online sales, but that centres are likely to take their newfound capabilities to the negotiating table with them. “There will be some sort of a middle ground reached where if the product is fulfilled in the store, it will be counted as an in-store sale, but it’s a challenging discussion…I struggle to see a circumstance where a landlord can claim a piece of online sales.” Stewart predicts that landlords will begin offering the intelligence they collect on customers as a service to retailers, signalling a change in the retail tenancy landscape towards market rents. Although market rents may be the go-to moving forward, Wragge says he is currently experiencing a focus on turnover rent provisions. “We are seeing greater emphasis on turnover rent provisions with the onset of the cashless society. It’s going to be far easier for landlords to track the amount spent in each store and the centre as a whole,” Wragge said. Turnover rent provisions are also incentivising longer opening hours, which have the added bonus of tying into the entertainment-focused offering operators have created in recent years. As Olson points out, this is bringing Australian retail in line with global standards. “Traditional centres in Australia would be open between ten and five every day. Now with the inclusion of having entertainment precincts, they are seeking to extend those trading hours,” he said. “If retailers are making more in certain pockets of the centre, they can charge more rent.” Bourke Street in the Melbourne CBD The unsustainable agreement However, many stakeholders on the retailers’ side of the fence are fed up with the retailer/landlord relationship being driven by sales growth and incrementally increasing rents. Savill’s divisional director of retail services, Leighton Hunizker, believes the system is ultimately unsustainable, telling IRW that landlords have created a vicious cycle where retailers are incentivising online shopping by increasing in-store prices to make up for higher rents, further pressuring sales growth. “The old school of thought from landlords over the last decade has been to view retailers not by what they bring to the centre, but purely as a mechanism to extract money,” Hunziker said. “There needs to be a rebalancing to reset the rental price so that the differential between the online price and the online price is narrowed.” The cycle has seen landlords willing to risk vacancies to obtain rent increases, according to Hunziker. In one case, he says that an independent food retailer was slapped with an unsustainable 20 per cent rent increase, even though they outperformed the centre over their original lease period. Australian Retailers Association chief Russell Zimmerman also said that the nature of the tenant/landlord relationship should change, telling IRW that an increasing number of large scale retailers are complaining about unsustainable rents. The consensus is that something has to give, either rents let up – which Hunziker doesn’t expect will happen – or vacancies will start to increase. That, he says, is already beginning to happen in tier-two centres but has so far been put off in primary assets by demand from international tenants coming into the country. Retail Apparel Group’s head of property Nicole Lazarou confirmed that vacancy rates are on the rise. For the moment, she told IRW that this trend is actually benefitting RAG. The rent bill is “going backward, not going forward” in the shopping centres where its Tarocash, Johnny Bigg, yd., Connor and Rockwear brands are located. “We’re not seeing rents rising in new stores or renewals. We’re seeing quite the opposite – decreases in rents. It’s a tough retail climate,” Lazarou said.