Abstract
This research examines how to relieve the economical pressure to the market of shopping centers by choosing one of the percentage rent forms. Retail rents have two rental components typically: base rent and overage rent, which is equal to some predetermined percentage on sales and is paid once the tenant reaches some level of sales. Both of these components are related to many factors which are considered in international practice. The determination of the percentage rents in Lithuania is much more complicated because the most important information about retail segments of the shopping centers (sales per square meter, gross leasable area and rental prices) is not publicly available. The goal of this research was to analyze the US experience and data that is available on percentage rent determination and to adapt it to the Lithuanian market by implementing required adjustments.
Highlights
Real estate investments in emerging economies are characterized by low liquidity, slow payback and high sunk costs; enduring uncertainties about demand, price/m2 and land costs (Rocha et al, 2007)
There are many factors that influence rent price, especially percentage rent price in the shopping centers (SC) and they can be classified in two main groups: 1. External factors (Des Rosiers et al, 2009): –– factors related to the rented area size; –– factors related to experience of the SC, clients loyalty, rent maturity and inflation; –– economical factors and the diversity of the tenants; –– the concentration of the tenants
The most significant change of the GDP in the US was noticed in 2003 (–13%) when in Lithuania it happened in 2009 (–17.5%). This caused us to choose the data of the period 2002–2003 which was published in the ULI report “Dollars and Cents of Shopping Centers” (ULI – the Urban Land Institute, 2004)
Summary
Real estate investments in emerging economies are characterized by low liquidity, slow payback and high sunk costs; enduring uncertainties about demand, price/m2 and land costs (Rocha et al, 2007). Consumers are the main stimulating force for the economy while decrease in retail sales is an indication of economical slowdown threat which causes the demand decrease for new shopping premises. The economical recession, which started in 2009, adjusted the real estate (RE) investment market development and transformed the relationship between the main participants of the RE market including developers of the shopping centers (SC), retailers and creditors – banks. Lower retail sales caused weaker demand for commercial premises and lower rental prices. These factors impelled SC managers and owners to find some ways how to reduce their vacancies and how to keep stable customer. The researchers Alexander and Muhlebach (1990) stated, that the success of the shopping centre depends on the success of its tenants, which concludes the direct relationship between the turnover of the tenants in SC and the rent price, which causes the need for the deeper analysis of the reciprocal needs before any rent discounts are applied
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