IPF News

The IPF Investigates the future of Turnover Leases

01 Jun 2021

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Are turnover leases a temporary measure in difficult market circumstances or are they a growing trend that will become a common feature in the UK market? Either way, turnover leases present new challenges to UK valuers, while, for investors, the question is whether the valuation of a property leased on a turnover rent accurately reflects its worth.

The IPF Research Programme has commissioned a team comprising Malcolm Frodsham, Real Estate Strategies, Nick French, Real Estate Valuation Theurgy, and Rikesh Parmar of Riverton Capital Partners, to undertake a study to cast light on this evolving situation. Via an initial survey of key industry stakeholders, including UK valuers and investors, the first part of the study will identify the prevalence of turnover rents and the variations in their term. It will also consider the implication for published performance metrics and what new series are required to support the valuation of turnover rents.

Part 2 of the study will assess the implications for investment worth and analyse the implications to cash flows.

Bill Page, Head of Real Estate Markets Research at Legal & General Investment Management Real Assets, will chair the Project Steering Group (PSG) responsible for overseeing the research. He commented: “The pandemic has accelerated many pre-existing trends. One of these is for greater flexibility in retail leasing to encourage the “right occupier” or simply to reduce voids. There is a consensus view that the proportion of turnover rents will increase, but there has been little market testing on quantum, form and valuation impact. This research will be invaluable in building the industry’s knowledge of this important part of asset and risk management.”

RES Director, Malcolm Frodsham, commenting on the work to be undertaking, said: “The move towards turnover rents has provoked much comment, but the true extent of the changes in different markets is unclear, as well as the knock-on ramifications for other lease terms, valuations, asset business plans and market analysis.”

The research findings are scheduled for publication in Q4 2021.