Under tight trading conditions cash flow is everything. And nowhere is this more clearly understood than in the retail sector. That’s why leading retailers are putting pressure on landlords to change their lease terms to more flexible arrangements on payments.
Historically, rents on shops, offices and warehouses have been paid on a quarterly basis in advance. Now after two years of wrangling, one of the UK’s largest landlords has broken ranks and has agreed to offer more flexible payment terms on a monthly, rather than quarterly, basis.
Hermes has a property portfolio of £11bn in the UK and is looking to offset the extra administration costs by changing to electronic payments by direct debit. Apparently, monthly rents will be marginally higher, but the advantage to the retailer in paying on a monthly, rather than quarterly basis, is the difference it makes to cash flow. This is particularly critical at this time of year after a poor summer’s trading and with the lead up to the busy Christmas period.
This new-found flexibility may not only be good news for retailers, but the wider industrial community too may benefit. Why shouldn’t warehouses be considered in a similar light? Retailers may have lead the way, exerting pressure through their financial clout and by the persuasive influences of such retail magnates as Sir Philip Green, owner of Arcadia, but now the precedent has been set the way is surly open for more flexible arrangements to be sought in the warehouse sector.
If more automated means of administration can be employed to process payments, then there seems little reason why landlords shouldn’t seek to lessen the burden for their tenants (clients). As credit is becoming more difficult to get, making cash flow a little more easily can make a big difference and may even make the difference to a landlord of having a tenant or not.