One says ‘screw you’, the other says ‘let’s work together’. The dilemma of shopping centre rent and franchising.

‘Screw You’ Or ‘Let’S Work Together’  Dilemma Of Shopping Centres Franchising 780X660 1

I spoke with two passionate people who are key stakeholders in their positions at either end of the retail rent and shopping centres issue exacerbated by COVID-19 conditions.

One is an experienced, major shopping centre leasing executive. The other is a franchise owner in food retailing for over 25 years, who has in excess of five (5) stores across three (3) different states, all in large shopping centres. 

They are not in the same shopping centres as each other.

Yes, they sit on opposite sides of the fence, and are equally passionate about what they do. From my experience and knowledge of both of them, they are both good operators in what they do.

I thought it would be interesting to get their insights to see how aligned (or not) they were, and what that might mean broadly. And, in these ‘honesty sessions’, they both had to speak anonymously, in order to get it all off their chest.

Franchise Buyer And Rent In Shopping Centres Post Covid 19

One says ‘screw you’, the other says ‘let’s work together’

The two parties are still on different pages right now.

The franchise owner, who is far from what you’d describe as a long term ‘disgruntled tenant’, is frustrated by what he sees as years of a power imbalance being leveraged against him. He feels that there is “No love, no respect, and certainly no loyalty.” from landlords in their leasing behaviour over many years. Rightly or wrongly, this will clearly influence any action he takes.

“And now with COVID, landlords are screaming. But, this is finally our chance to have a win.” he said.

The leasing executive, who is experienced and quite senior in his position, has been in the sector 10+ years. He acknowledges that there are operators in his industry whose conduct prior has created wider problems that are being exacerbated at this time.

“Right now, there is a massive opportunity for landlords and tenants to build a better relationship. It’s a reset opportunity. I can’t speak for everyone else, but I personally see this as a real opportunity to work collaboratively.”

The key question is, with such built up tenant resentment, which is widespread according to the franchise owner, can landlords and retail tenants in larger shopping centres in particular, co-operate enough to effectively survive in anything like their current form post covid?

Leasing executives are deliberately ‘removed’

In contrast to the desire for the leasing executive to build better communication, the franchise owner sees this as hardly possible, or even desirable from a corporate landlord perspective.

“We have trust in our centre manager and centre management staff. But, they keep their leasing agents separate from the centre, so we retain the good relationship at the shopping centre level.”

Effectively, the franchise owner feels the leasing executives can act in a more “...ruthless and colder…” manner by being separate from the day to day, to primarily interact with the tenant in lease negotiations every 4 - 5 years. 

True or otherwise, this view poses a significant barrier to effective communication, and good outcomes for both sides going forward.

This is what they think

Leasing Executive view;

  • Relationships built on communication is the key,
  • Opportunistic tenants taking unreasonable advantage will get ‘stung’ at some point,
  • Those in trouble pre-covid will use it as an excuse,
  • People don’t recognise that shopping centres have substantial costs too.

The franchise owner view;

  • Landlords will get “screwed” in any way that many tenants are able,
  • The ‘take it or leave’ approach to lease negotiations of previous years will disappear with the lack of available tenants,
  • Landlords will need to get more realistic going forward on store fit outs and their cost impediments,
  • He will negotiate a shop fit requirement BEFORE signing a new lease, and suggest everyone does the same.
Future Of Shopping Centre Rent Franchise Buyer

What do they see for the future?

The franchise owner has a sombre warning. 

“If I have to lose one or two stores and the landlords get smashed (with his better lease terms going forward across his portfolio), so be it. They have built up nothing but animosity. No trust. We don't believe anything their leasing people say, they’ve always had us over a barrel, and always used that position.”

The leasing executive again was clear on his point. “Stress is taken out by communication. Big picture, long term. It is not in my best interests to ‘stitch’ someone up and the shop to go dark (vacant). I don't want 15 shops gone in a shopping centre, as the next rent will be cheaper and it will also cost us money to get a new tenant in there.”

“Also, keep an eye out for future leasing clauses to protect the shopping centre’ position in events such as a pandemic.”

The leasing executive signed off with an ominous sign for franchise companies especially. 

“No franchisor is backing themselves anymore (even pre-covid). They used to sign the head lease and put a franchisee in, backing their concept and system to work. Now, they rarely do that, and are the first to look for the exit when things go bad.”