This morning, homewares retailer Dunelm reported a strong performance in its trading update in a market that has shown little or no growth over the past year.

And, with the total number of stores hitting 73 at its end of year, it is only halfway towards its medium-term target of having at least 150 superstores.

This ambitious growth plan is good news for the property industry. Dunelm has a good covenant and occupies prime sites in retail parks across the UK. Yet landlords should be aware that, while retailers such as Dunelm may well be expanding in a tough market, they will also be out for the best deals they can get.

Dunelm’s board noted in its trading statement that the retail warehousing market will, in the next 12 to 18 months, become increasingly favourable to occupiers with strong covenants. It says that this factor will mean the pipeline of potential openings for the next financial year is strong.

Dunelm may be one of only a handful of retailers expanding in the out-of-town market this year. While the retailer should be cautious, with this year remaining tough, it will fare better than the bulky retailers because it has relatively low transaction values – shoppers on average spend less than£30 on each visit.

This development is in stark contrast to the furniture retailers. Last week, Land of Leather issued a profit warning after a weak start to post-Christmas Sales. This follows similar troubling news from furniture competitor ScS, which in December warned that the downward trend in sales orders will significantly affect its half-year results.

With furniture retailers struggling to meet sales targets this year, it will be left to retailers such as Dunelm to take their pick of the space available. And they will be pushing for everything they can get.

But this year won’t just see more space coming onto the market, it will also see a renewed flexibility in leases. DIY retailer B&Q has had some success in achieving monthly rents on both its new and existing leases. While landlords have been reluctant to agree to monthly rents so far, they will have to back down this year.

And, while some retailers don’t view monthly rents as essential, they will certainly be pushing for other forms of flexibility, whether it be nil increases on rent review or fixed uplifts. As the outlook for this year remains cautious, landlords should stop putting up barriers and consider all the options, because expanding retailers like Dunelm may be few and far between.

Topics