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‘Retail Rents’ – How Can They Be Saved?

‘Retail Rents’ – How Can They Be Saved?

20 September 2019
Author: Jasmines Waters

Just like the residential property ladder, retail space is proving to be a tough nut to crack. Many retailers are currently in the process of demanding rent cuts after a long stretch of company voluntary arrangements. This has now left many questioning what the long-term effects of this may be, perhaps undermining the overall investment in retail property. As the increasing appearance of rent cuts show no signs of slowing down, how could this demand translate to the state of the of the high street – or larger still – the market itself?

Why are we seeing so many cuts to rent? 

Retail titans such as the Arcadia Group, Monsoon and Debenhams have all recently launched company voluntary arrangements (CVA), seeing a wave of store closures and slashes in rent in many of our local high streets. Many other ‘household names’ are now also looking to follow suit in an effort to try and balance out the playing field. One immediate effect of this is the rise in landlords left trying to avoid the masses of empty unit appearing up and down the country. Retail tenants are now in a much more powerful position in most areas, leaving them in a better position to negotiate their leases. However, because of CVAs arguably punishing ‘healthy’ retailers by potentially happening for the wrong reasons and the general feeling that the government are not doing enough to support the high street amid Brexit concerns, many retailers are left feeling stuck in a vicious cycle.

How can the approach to renting be changed?

With retail in the current position is has found itself in, change seems almost inevitable. Many expect there to be a key shift in the relationship between landlords and retailers, with the idea of ‘turnover-based’ rents potentially balancing the equation. While some retailers have built up debts and have expanded too aggressively, turnover rents could change the basis for how to charge rent long-term if trading is successful. This does however have the potential to poses a problem particularly for fashion if sales remain predominantly online, and retailers struggle in maintaining their brick-and-mortar connections to their customer base if they fail to tap in to new consumer experiences. Landlords may have to change their tack too, with many slashing the value of their retail holdings, potentially leaving the smaller operators more greatly exposed to risk. Some may choose to focus their attentions (and resources) on other sectors altogether, with CVAs showing no signs of slowing down or creating fewer problems. Having said this, if the retailer-landlord dynamic can in fact be predicted as corrected, or rental terms are changed – the winning combination could ensure security in the coming years as opposed to a more long-term erosion of the high street.

 

Image source: https://www.rsprivilegeclub.com/

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