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Falling retail rents give stores a lifeline

Posted by retailigence on January 5, 2009

Retailers get boost in tough times with more power to negotiate rents

Retail rents fell for the first time in 15 years in 2008 and will not return to growth until 2013, handing struggling retailers a potential lifeline to stave off administration. The decline in annual rents will give retailers substantially more negotiating power over landlords, as they battle some of the toughest trading conditions on the high street for 30 years and as an extra 2.5 million sq ft of new UK shopping centre space opens in 2009.

Retail rents fell by 0.4 per cent in 2008 – the first annual fall in rents since 1993, when they tumbled by 1.9 per cent, according to the property services company King Sturge. Stephen Springham, the head of retail research at King Sturge, said: “It is not going to be an easy 2009 for retail sales, but there will be some leeway on the rental side which will allow retailers to continue trading on slightly more favourable terms – giving them some much-needed breathing space.”

King Sturge forecasts that retail rents will tumble by 5.6 per cent in 2009, 4.7 per cent in 2010 and 2.1 per cent in 2011. In 2012, there will be zero rental growth, but rents will finally increase by 1.6 per cent in 2013. King Sturge said that more than 90 per cent of the 2.5 million sq ft of new shopping centre space that will open in 2009 will be leased, but on fav-ourable terms to retail tenants such as monthly rental payments, rent-free periods, break clauses and generous incentives, including contributions to shop fitting fees. Over the past few months, retailers including House of Fraser, the department store, and Focus, the DIY retailer, have agreed with landlords to pay rents on a monthly basis on some stores, instead of the hitherto standard practice of paying a quarter in advance.

Mr Springham said: “Most retailers will push for monthly rents. It is a bit more than retailers whingeing – 12 payments a year does give you a lot more fluidity. Landlords will have to back down on a number of issues.”

The property firm said there is little evidence to date that the schemes slated for 2009 will be pulled completely but “some may lapse into 2010”. King Sturge’s retail forecasts are part of its wider 2009 property predictions survey to be published tomorrow. Retailers still remain committed to taking space in quality new shopping centres. Of the 10 million sq ft of retail space that opened in 2008, about 95 per cent is already let, said King Sturge.

It forecasts that the volume of retail sales will fall by 1 per cent, and 0.6 per cent in terms of sales value, in 2009. The worsening economic conditions this year will lead to an increased number of retailers collapsing into administrations and subdued occupier demand.

However, in contrast to the recession of the early 1990s, King Sturge said the greater involvement of private equity firms in retail and more rigorous business recovery procedures – notably pre-pack administrations – mean that large numbers of shops will not be left empty. The property firm said: “Consequently, the ‘boom – bust – disappear’ cycle is now largely defunct.”

In the past month, Whittard of Chelsea, the coffee and tea specialist, The Officers Club, the discount menswear chain, and USC, the young branded fashion chain, have been bought out of pre-pack administration with reduced liabilities. Experian, the data specialist, has forecast that 440 retailers will collapse in the first four months of 2009.

Sources :- The Independent


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