30 janvier 2025
If you look at it from a real estate perspective, the business model of a Shopping Centre is simple. An investor buys a plot of land, obtains planning permission, constructs a building with standardised retail units, and rents those out for as long as possible. Given the large number of rental units, the risk of catastrophic default is manageable. The landlord meanwhile participates directly in the tenant’s turnover and can – in theory – fall back softly onto a guaranteed base rent if turnover diminishes.
For decades then, it is no surprise this business model proved so attractive that banks provided a lot of debt capital and high leverage ensured fantastic returns on equity.
Fast forward to today’s world however, and the picture is more curious. In reality, the business model is based on the promise of buoyant turnover rents and these are under pressure like never before. Shopping Centres were already dealing with the challenges to turnover calculations from burgeoning online retail, and then the pandemic balkanised visitor flows overnight. More tenants faced insolvency, defaults increased and energy costs have also
drastically increased. As tenant turnover collapses, the Shopping Centre sector of old rapidly loses its appeal, and the onus is firmly on key players to pivot into new and sustainable models. And just like Alice, the curious girl in a blue dress who took a leap of faith following the talking White Rabbit to an enchanted world, Shopping Centres are grappling with the laws, logic and opportunities within an ESG wonderland.