Recently in Retail rents Category

Hands up any retail agent not involved in lease restructurings? 

A BBC report this morning showing major retail chains have closed 7000 branches can only add to landlords instructions to agents to find ways of propping up capital values by offering rent holidays and the like in return for longer leases.

One leading retail agent said this week that workload at his firm had surged recently.He said  his team is now busy figuring out all sorts of ways for landlords to ensure long term rents are not jeopardised by the sort of short term deals described in an earlier posting.

These deals, he said, are cutting the effective rent paid over the next year or so by 10% -20% for mildly distressed shopkeepers nearing the end of their leases - and up to 50% or more for those being resuscitated by the administrator. 

A short explanation of how extending leases at the old headline rent may prevent billions being wiped from retail values is contained in today's Standard column.

Apologies for the third posting in three days on the same topic: but a report in the FT this morning detailing the refusal by landlords to halve rents for the 51 surviving Allied Carpet stores reinforces the view that a primal struggle is underway between landlords and retailers.

The last published Allied accounts show the carpet seller was paying £55m in rent for 217 stores in 2007 - about £250 000 per store.  Let's assume the 51 stores "pre-packed" to the management were paying at least that much. That tots up to £13m. Add another 30 existing stores the management wants to rent and the total comes to about £20m

The phoenix company wants to pay maybe £10m. Multiply that by a minimum of ten and you have minimum loss of capital value of £100m:  this, for just 80 stores. Landlords like British Land (BL) and The Mall fund will give ground, but maybe be not as much as the chief executive in yesterday's second posting on the topic.

But the terror for landlords is that expressed in the first posting on Wednesday: that these short term concessions will lead to a long term collapse in retail rents as not-in-trouble retailers demand parity. That will wipe billions from capital values.

No wonder BL and The Mall are resisting. But best not resist by using the risible excuse that giving way to Allied will be "unfair to other retailers."

Retail landlords must be getting seriously scared. Last week the British Property Federation played the "poor pensioner" card, when commenting on the collapse of Allied Carpets, which had "non-cancellable" lease obligations of £36m in 2008.

There is of course a link between the falling value of property held by pension funds and the amount they pay senior citizens. But given that most funds hold no more than 10% in real estate, that link is not strong.

BPF members may be less worried about the elderly than they are about the level at which retail rents will settle in the longer term.

As the world knows, landlords are offering short term leases at way below market rents to distressed retailers. They comfort themselves with the expectation that when the current maelstrom blows out, rents will return to "market" levels.

But not-quite-distressed retailers are currently paying four or five times as much as their poor next door neighbours. Do landlords seriously expect the big retail chains, now gamely paying up, to ignore this evidence at lease renewal?