Head of Valuation Advisory at JLL Italy

Riccardo Bianchi Head of Valuation Advisory at JLL Italy

from steP rent to collection loss, how valuations change

The parameters we consider today when carrying out property valuations are partly the result of changes resulting from the dynamics triggered by the Covid emergency. Due to the economic and organisational repercussions of the pandemic, which led to the closure of many businesses, especially retail ones, we had to consider new variables. For example, a series of previously unforeseen extra-contractual discounts were applied in connection with

both the inactivity of shops and shopping centres and the reduced spending opportunities and income of consumers. In other words, step rents or discounted rents were introduced for a limited period of time, with a view to reverting to the original rent once the business was fully up and running again. Personally, I find it more sustainable to temporarily reduce rents than to increase vacancy in high streets or shopping centres. Keeping a property vacant does indeed generate costs: finding a new tenant is not so easy, a vacancy period has to be foreseen and an increased investment in marketing is needed to promote the space. With regard to shopping centres, the difference in performance between prime and secondary centres has become more acute in this period, the latter being more penalised in terms of footfall, tenants and location. In these facilities, and more generally with regard to tenants with poorer performances, a variable rent based on a percentage of turnover was chosen. Another adjustment considered in the valuations was the increase of the collection loss percentage, a parameter that identifies the risk of non-payment by the tenant. Compared to the high street, shopping centres were more penalised by the closures: they have only been open continuously since last May and we are therefore not yet in a position to assess their performance on an annual basis. For the retail in town part, especially in the luxury segment, there have been much smaller discounts on rents, and in some cases no reduction at all. Looking towards a post-emergency market scenario, as far as collection

«it is alsO pOssible tO adOpt cOntractual flexibility in terms Of bOth duratiOn and rent, thus allOwing retailers tO Open pOp-up stOres and new cOncepts mOre easily»

▲ Milan skyline

losses are concerned, we are returning to pre-Covid levels, while whether a discount policy will be maintained or rental values will return to normal will be determined by the performance of the tenants. However, it is also possible to adopt a flexible approach in terms of both duration and contractual rent. This allows tenants to use retail space in a more flexible way, experimenting with new formats such as pop-up stores, which are performing well, or shops that follow innovative concepts. In short, contractual formulas and payment terms are changing and, in parallel, the traditional shop formats and how they are used are also changing. On the 2022 front, the year began with significant interest in Milan and also Rome by local and international operators: a trend that is expected to remain positive despite the current complicated geopolitical situation. In these times of uncertainty and strong dynamism, it is essential that the valuer performs a veritable consulting activity, which goes beyond the analysis of the numbers, in order to guarantee significant added value to the various players in the real estate supply chain, throughout the entire life cycle of the asset. •