Problems with variable leases started a few years ago. The cause? E-commerce. The shopping centers were crowded as always, but online-generated revenue was not recognized in John’s lease contracts. XYZ started to lose money and John’s lawyers wrote tons of clauses to tackle the issue, but the remedy was not effective and led to even more legal problems. Tired and despairing, John made a drastic decision: no more revenue sharing, only fixed contracts. But John is all but happy with the result. He is smart and knows well the importance of risk-sharing, to attract the best brands and maximize profits.
Unsolvable problem? Maybe not, technology can help. XYZ’s shopping centers have sensors installed virtually everywhere. Irrespectively of the used technology (heating cameras, laser scanners or smart phone detectors), XYZ and its tenants have an accurate picture of the customers’ position at all times. The data is very valuable not only to implement optimal sale strategies, evaluate the tenants’ performance and optimize the tenant mix, but also to implement rental leases!
An ad-hoc footfall-based model for setting commercial retail leases has already been developed at WSP. With such a model, property owner and tenant incentives are perfectly aligned. The model takes into account the tenants’ standard revenue, operating margins, pedestrian flow, etc. to always set the right contract. Through big data analysis it is possible to assign a value to the time spent by customers in the mall or in a single store and, from that value, calculate the rent of a commercial property.
