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High Street Rents

Discussion in 'General Business Forum' started by Spongebob, Jan 16, 2013.

  1. Spongebob

    Spongebob UKBF Ace Free Member

    2,109 1,072
    I followed a link on another thread to a Daily Mail story regarding the demise of Jessops.


    http://www.dailymail.co.uk/news/article-2262801/Relief-Jessops-employees-stuck-pictures-shop-window-stunt-leads-job-offers-firm-orders-display.html


    The bit that stood out for me was the reference to shop rents. This has also been much commented on with regard to HMV and Comet.





    Clearly, subsidy of rents is a complete nonsense. Surely however, it is in the interests of almost everybody that shop rents fall considerably, so helping retailers to survive, employ staff, and keep our high streets active.



    In very many areas, the proportion of empty shops is staggering. All shops however, will find a tenant if the rent is set at the true maket level; in virtually all cases a lot lower than landlords are asking. The only reason why a shop remains empty is because the rent is too high.


    Yet landlords seem to prefer to allow empty units rather than offer true market rents, presumably so as to protect the high rents being charged to other tenants nearby in other properties owned by themselves.


    The abolition of the 50% rebate on business rates for empty retail properties a few years ago was clearly an excellent move by the last government, and the current lot improved the situation further by lowering the threshold at which full rates become payable to a rateable value of £2600 in April 2011.


    We need to go further. In my view full business rates should be payable on all commercial properties whether they are occupied or empty. The only exception would be the retention of the current system of small business relief. I would abolish completely the 3 month grace period after a tenant's lease expires - the landlord should become liable for the rates immediately.



    This would put further pressure on commercial landlords to make sure that their premises were fully let. As I said earlier, there is a tenant for every property so long as the price is right.


    Rents in this country are absurdly high, and unless steps are taken our high streets will die completely as retailers all move out of town or online. If a few landlords go bust in the process then that is simply collateral damage in the cause of the greater good.
     
    Last edited: Jan 16, 2013
    Posted: Jan 16, 2013 By: Spongebob Member since: Dec 9, 2008
    #1
  2. David Griffiths

    David Griffiths UKBF Legend Full Member - Verified Business

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    Not only in the high street, either. The system for setting rent reviews based on "current values" needs review. All too often I've seen people in industrial units lumbered with huge rent increases because the landlord has just let another unit on the absurdly high terms. Let it to a complete clown, most of the time, who has no idea of rental values and who goes bust in record time. The only trace of the businesses existence is the legacy of high rents dumped on the other tenants on the block.

    Pubs are possibly even worse, because until recently the Pubco's were selling a dream to potential tenants. If the current tenant didn't want to get ripped off, there was always another dewy eyed hopeful - fortunately that's not the case these days.

    Completely agree with Spongebob's posts. Rents must reflect reality, and artificial subsidies have no place.
     
    Posted: Jan 16, 2013 By: David Griffiths Member since: Jun 21, 2008
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  3. Spongebob

    Spongebob UKBF Ace Free Member

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    This could be solved very easily if all rent reviews were balanced with an entitlement for the tenant to terminate the lease without penalty if no agreement could be reached. Good landlords would accept this as it is in their long term interests to retain good tenants.The large number of scumbag landlords however, would hate it!

    Far, far too much power lies with commecial landlords once a lease is entered into. Addressing this can only benefit enterprise, business, and the economy as a whole.
     
    Last edited: Jan 16, 2013
    Posted: Jan 16, 2013 By: Spongebob Member since: Dec 9, 2008
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  4. Kirsty H

    Kirsty H UKBF Newcomer Free Member

    22 9
    Whilst I agree with most of the comments, businesses don't help themselves when they sign up to leases or agree rent reviews without taking advice. All lease terms are negotiable, and every business who agrees to a rental increase is making it more difficult for his neighbours to defend any increase.

    The "upwards only" rent review as standard does not help. If businesses all started demanding "upwards/downwards" rent reviews then that would go some way to bringing rents down in a falling market. However the institutional landlords would strongly resist that due to funding problems they would then have.

    It all comes down to negotiation skills - landlords don't have all the power, especially in this market - it is just a perception.
     
    Posted: Feb 10, 2013 By: Kirsty H Member since: Nov 6, 2012
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  5. Billmccallum

    Billmccallum UKBF Newcomer Full Member

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    Currently looking for premises for my wifes new business, looked at one high street unit, asking price £125,000 p.a. nearly wet myself :)
     
    Posted: Feb 10, 2013 By: Billmccallum Member since: Apr 20, 2010
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  6. sirearl

    sirearl UKBF Legend Free Member

    29,800 6,640
    Anti- capitalist blasphemy.:eek:

    Our whole system is based on overcharging the punter.:)
     
    Posted: Feb 10, 2013 By: sirearl Member since: Apr 23, 2007
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  7. deniser

    deniser UKBF Legend Free Member

    7,974 1,676
    Tenants also need to learn that they have a lot more power if they just talk to each other and share information.

    Big chains employ surveyors to snoop around and find out what others are paying in the vicinity but independents are very secretive with this information, to their detriment at rent review when they have no comparables.
     
    Posted: Feb 11, 2013 By: deniser Member since: Jun 3, 2008
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  8. Jeff FV

    Jeff FV UKBF Big Shot Staff Member

    3,490 1,635
    Agree with very much all that has been said above.

    I do also think that the problem is compounded by the smoke and mirrors of modern day financing. The banks lent to landlords of on the basis of current rents. If those rents are lowered the value of their loans falls, landlords get less favourable loans etc. <-- this is a very simplified version, but the bottom line is that it is in lots of peoples (i.e. landlords & banks) to keep rents at these unsustainably high rates. Sadly, this doesn't solve the problem, but infact compounds the problem and will lead to the bubble bursting which is far more painful for all rather than let it deflate gently, and under control.

    We supply our products to high street retailers. It is tough out there right now. Two tales from a recent trade show we exhibited at illustrates this:

    Chatting to a fellow supplier, she told us that 100 of her stockists simply no longer exist.

    Chatting to a stockist of ours who has a successful, profitable shop in a popular market town. They are reaching a half-way break point in their 10 year lease. Although making a profit, they are going to walk away from the shop when they reach this break point as they do not want the risk of being tied in for another 5 years.

    Tough times ahead.

    J
     
    Posted: Feb 11, 2013 By: Jeff FV Member since: Jan 10, 2009
    #8
  9. Moneyman

    Moneyman UKBF Legend Free Member

    2,729 785
    Daily Mail..:eek:.now i understand where you views have come from in the past.

    However I cant agree with any of you. I am involved with a high street. We have won awards for the best high street and things are booming. We own 80% of the properties and we are constantly upping the rent. We look at the street as a whole and charge different rents to different tennants depending on their contribution to the whole. We turn away plenty of possible tennants because we already have something similar. The original shops like the deli and the cheese shop get lower rents and the bank and estate agent are charged top wack because we only allow one.
    If you charge a fortune and take the highest payers only you eventually end up with an area full of betting shops and estate agents and nobody comes.
     
    Posted: Feb 11, 2013 By: Moneyman Member since: May 3, 2008
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  10. Talay

    Talay UKBF Big Shot Free Member

    3,748 782
    But that is just plain stupid.

    With the benefit of leverage, the tenant can simply request a new lease from the landlord which provides for far greater flexibility, perhaps annual breaks on the side of the tenant and if the landlord refuses, then exercise the current break clause.

    Exercising before negotiating is utterly defeatist.
     
    Posted: Feb 11, 2013 By: Talay Member since: Mar 12, 2012
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  11. Jeff FV

    Jeff FV UKBF Big Shot Staff Member

    3,490 1,635

    But how do you know she hasn't negotiated?

    She is a very astute lady, has diversified her business over the last couple of years and - unless she gets a favourable deal - she will walk away from her high street presence. (For reasons of confidentiality I don't want to reveal too much, but her diversification has not been to selling online.)

    She is using her leverage, but as things currently stand, its not getting her a deal that she can work with, so it'll probably mean another empty shop. Which brings us neatly back to the OP's point.

    J
     
    Posted: Feb 11, 2013 By: Jeff FV Member since: Jan 10, 2009
    #11
  12. gordano

    gordano UKBF Regular Free Member

    453 100
    The approach by Moneyman seems a good one, by taking the holistic view of the high street then the right mix of businesses and rents according to type of business works?

    As for reducing rents to help tenants, some large (multi site) tenants are already negotiating down rents on the basis they can not survive otherwise. Landlords are businesses also, without rent they suffer, so market forces can work.

    Look at it another way, if landlords are all competing for the highest rents then they all want the bank or other high value tenant (Moneyman's example), reality is there are different teannt business models, each with different affordabiltiy for rents psqft. Unless a landlord owns all or most of the high street this is hard to achieve a varied rent approach?

    I am not sure that forcing landlords to pay full rates for every day a property is empty is the solution. Our high streets are going through a painful transition, perhaps there needs to be a strategic approach by government and local councils?
     
    Posted: Feb 11, 2013 By: gordano Member since: Jan 19, 2010
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  13. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    9,692 1,952
    Is it not the case that the large insurance companies own the majority of town centre freehold and therfore are the main hold back to lowering rent as they work via agencies to let the shops and would rather hold out for the good times as their other stock market holdings offer such poor results
     
    Posted: Feb 11, 2013 By: Chris Ashdown Member since: Dec 7, 2003
    #13
  14. Jeff FV

    Jeff FV UKBF Big Shot Staff Member

    3,490 1,635

    That was what I was alluding to in my earlier post.

    However, I'm not sure that the 'good times' are going to return anytime soon and the value of the properties will collapse as they all become un-lettable.

    J
     
    Posted: Feb 11, 2013 By: Jeff FV Member since: Jan 10, 2009
    #14
  15. sirearl

    sirearl UKBF Legend Free Member

    29,800 6,640
    Posted: Feb 11, 2013 By: sirearl Member since: Apr 23, 2007
    #15
  16. deniser

    deniser UKBF Legend Free Member

    7,974 1,676
    It is a very unusual scenario indeed where one landlord owns 80% of the properties and can pick and choose tenants to get a workable mix. I bet that's not much replicated up and down the country. In my parade, no single landlord owns more than two buildings.
     
    Posted: Feb 11, 2013 By: deniser Member since: Jun 3, 2008
    #16
  17. MrCloser

    MrCloser UKBF Newcomer Free Member

    370 99
    This is a massive and growing problem and this is just the tip of the iceberg imo. Where I live there are rows of empty shops; the council have stuck vinyl prints on a lot of the windows to try to reduce the boarded-up look, but it still has a depressing post-apocalypse feel.

    I really think a lot of our High streets will soon become a relic of our retail past. In some areas a lot of these shop un-lettable shop units will be turned into low rent housing ghettos for the unemployed, as bedroom tax starts to bite and over a quarter of a mllion 1 bed flats and bedsits need to be found.

    This is a national disaster unfolding fast and needs action:


    Ebay, Amazon etc As well as clamping down hard on their tax dodging in the UK, maybe impose a digital tax for online sales, and use it to reduce retail business rates.

    Tesco, tesco extra, one-stop shops Enough is enough, this isn't competition, it is annihilation of competing local business and their local supply chains. Even worse, they usually build out of town leaving dozens of empty units in their wake; decimating the local competition is their business plan.

    Free Parking let small shops compete with the out of town retail barns by offering free parking.
     
    Posted: Feb 11, 2013 By: MrCloser Member since: Aug 2, 2011
    #17