The past year changed everything in retail, from how and where people shop to the very purpose of brick-and-mortar stores. One thing that didn’t change, however, was how most retail leasing models within large shopping centres are structured. While everything else in the world of retail was being upended, reimagined, or scrapped altogether, the tried-and-true leasing model fell behind.

“While leasing models in some regions are gradually starting to change to reflect omnichannel sales, the same hasn’t been true for much of the Asia-Pacific region,” said Jeremey Sea, senior manager for commercial marketing APAC at Sensormatic Solutions. “In countries like Singapore, for example, traditional leasing models are calculated based on one of two factors: a base rent that’s dependent on the size of the shop plus a percentage of gross sales, or a simple percentage of gross sales.”

Whichever figure is highest, Sea noted, is typically the rent a given shop pays. It’s been that way for ages, he said, and it hasn’t changed 18 months into the pandemic.

So, if COVID-19 and the rise of omnichannel shopping are fostering a change for retail rents in other regions, why not APAC? Why wouldn’t retailers and landlords in the region want to move toward a leasing model that, at least in theory, is more favorable to both parties? Let’s explore some trends and socio-economic factors that may explain just that.

In any analysis of retail leasing models in Asia, it’s impossible to overstate how different each country’s response has been to retailers during the pandemic.

For example, in Hong Kong and Singapore, retailers were forced to cope with the outsized power landlords hold over commercial leases.

In Singapore, retailers were granted about two months’ rental relief from the government. The relief was given to the landlords to be dispensed to the retailers, but soon it became clear that retailers either had challenges receiving relief from their landlords, or when they did receive it, it came too late. In fact, Today Online reported that few landlords passed those relief measures onto their tenants. Following the outcry from retailers in 2021, the government has taken over the task of dispensing the relief directly to retailers.

And even before omnichannel forced a re-evaluation of retail lease models in Hong Kong, they were disrupted by natural disasters and civil unrest. Luxury brands that relied heavily on visitors from mainland China were among the hardest hit, as those visitors accounted for up to 70% of sales. While some landlords were willing to discount rents or postpone collection, many weren’t.

Then, less than a year into the pandemic, a Q1 report from real estate services firm CBRE found that landlords in Hong Kong were increasingly offering discounted rents on premises formerly occupied by those same luxury brands. But just a few months later, reports emerged that many landlords were discussing increasing rents — something retailers may not be prepared for just yet.

In Australia and New Zealand, it’s quite a different story. Throughout the pandemic, the Australian government passed a litany of protective legislation for retail and commercial tenants, and the National Retail Association (NRA) issued guidance on ways retail leases should change, though there’s no indication that they actually have. Retailers in New Zealand, meanwhile, were able to leverage the nation’s “No Access in Emergency” clause enacted in the wake of the 2011 Christchurch earthquake:

“The clause applies when there is an emergency and the tenant is unable to access its premises to fully conduct its business due to reasons of safety of the public or property. Interestingly, whilst the clause was introduced because of the earthquake, the definition of ‘emergency’ in the ADLS Lease includes an ‘epidemic.’”

Additionally, the government announced a subsidy for arbitration between commercial tenants and their landlords as a result of COVID-19.

All told, there’s no one clear trend in play here, and there’s no sign that one will emerge anytime soon. However, things are beginning to change as retailers throughout the region are realizing their old ways of operating are simply untenable after the disruption caused by COVID-19.

The rise of ecommerce, its rapid adoption during COVID-19, and the parallel rise and acceleration of omnichannel ordering and fulfillment have collectively been a watershed for brick-and-mortar retailers in North America and EMEA. But in APAC, there’s quite a gap when it comes to the adoption of things like BOPIS (buy online, pick up in store) and buy online, pick up at kerbside — and it’s not yet clear how these solutions will impact leasing models.

“Consider densely populated urban centres like Tokyo,” Sea said. “There simply isn’t space for implementing buy online, pick up at kerbside, and APAC customers are too accustomed to have their online purchases delivered to their doorstep.” Now, layer in the fact that, according to the World Bank, almost 92% of Japan’s entire population lives in urban centres like Tokyo, and it’s easy to see why these solutions haven’t quite caught on.

Australia’s population, on the other hand, is almost equally urban, but the cities are generally more spacious, and retailers typically have larger footprints. And even though just 31% of Australian retailers offered a BOPIS solution prior to the pandemic, that soon changed after the arrival of COVID-19. Kerbside pickup — known locally as “click and collect” — became an immediate priority at the onset of the pandemic, and it’s almost certainly here to stay.

Again, it’s unclear how — or when — COVID-19 and the rise of omnichannel options like BOPIS and buy online, pick up at kerbside will change the nature of retail leasing in APAC, but it’s becoming increasingly obvious that those changes won’t be uniform throughout the region.

What might bring retailers and landlords together in APAC? How might they both benefit from a leasing model that accommodates online sales and based on its rising popularity in the rest of the world, anticipates the emergence of BOPIS and buy online pick up at kerbside as customer preferences?

If both parties had thorough, reliable, and trustworthy solutions that could track all sales that went through a given location — both in-store and online — and could use shopper analytics to understand the actual foot traffic going into and out of each location, they could come to the table and reach mutually beneficial arrangements. Retailers could avoid being overcharged during slow periods, and landlords could be confident they received a percentage of all sales coming from their tenants’ locations.

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