Hammerson is in discussions about proactively breaking at least two House of Fraser leases in flagship schemes as it continues to strategically reduce its exposure to department store anchors.

Retail Week understands Hammerson is considering exercising break clauses with the struggling department store chain in its The Oracle centre in Reading and Cabot Circus scheme in Bristol.

In the event it triggers breaks with House of Fraser, the landlord is looking to food and beverage and leisure operators, as well as more contemporary fashion brands to take individual floors within the multi-level department stores.

That would fit into the landlord’s much-publicised City Quarters strategy, which is centred on reducing Hammerson’s exposure to department store anchors and mid-range, high street fashion brands.

One source said the landlord could seek to break with House of Fraser before the end of this year or in early 2020. 

However, they said Hammerson has not taken a definitive decision. Discussions are ongoing with House of Fraser’s owner, Mike Ashley’s Sports Direct, and any decision is likely to hinge on what Hammerson bosses think of the new Frasers format, an upmarket fascia with the first to be unveiled in Glasgow in November.

The source said Hammerson is “looking at repurposing some of them and looking at one or two options on others, depending on how things progress with Sports Direct. Some of it depends on what the new Frasers concept looks like and whether it will work [in Hammerson locations].”

The source said that new occupiers would be “much more exciting for customers than a normal department store” and represented a positive move for Hammerson.

House of Fraser is currently a tenant on two other Hammerson schemes – Centrale in Croydon and Dundrum Shopping Centre, on the outskirts of Dublin.

Hammerson previously took space back from House of Fraser in its Highcross centre in Leicester in 2016 – repurposing the space for a Zara flagship store, a JD Sports, an Indian restaurant and a leisure operator.

Hammerson, along with a number of the other institutional landlords, has struggled in the first half of 2019 because of retail administrations and CVAs earlier in the year. At its interim results in July, it reported that net rental income on its UK flagships was down 6.8% and valuations were down 4.4%. 

To address that, Hammerson UK and Ireland boss Mark Bourgeois said the landlord was eyeing leisure, contemporary fashion brands and co-working space as future flagship anchors. 

House of Fraser’s struggles since being acquired by Sports Direct for £90m last year have been well documented.

At the delayed Sports Direct results in July, Ashley lamented that the problems facing House of Fraser were “terminal in nature” and that on a scale of 1-5, “with one being very bad and five being good”, the department store chain was a one.

He said “many landlords and local authorities have worked hand in hand with us”, but admitted he was “continuing to review the longer-term portfolio and would expect the number of retained stores to reduce in the next 12 months”.

Ashley also flagged that some House of Fraser stores, despite paying minimal or even zero rent, were still loss-making.