This weeks industry insider is Philip Sandzer, Director of Retail & Leisure Agency at DeVono Cresa. We asked him his views on the current and future relationship between retail property and the high street. With over 40 years experience in the retail property sector we had to learn more from him…
How has the retail property sector evolved over time with the high street?
The complexion of the ‘high streets’, and to a lesser extent in the shopping malls, has changed enormously over the last 10 years following structural changes in retail and the advent of online shopping. In an effort to keep vacancy rates down, landlords have taken steps to diversify their assets and introduce uses outside of the traditional A1 retail use class in order to adapt to the changing retail market and consumer.
The main focus has been on food, with most still falling within retail (e.g. Pret, Leon, Wasabi and Abokado) as well as obtaining change of use to A3 for full service restaurants for the likes of Five Guys, Ivy Café, Cote, KFC and Nando’s.
Other new categories that have appeared are gyms, health and beauty spas, barbers and other leisure operators including indoor golf, escape rooms and car showrooms (Tesla).
One problem that is apparent is that the current Use Classes Order came into effect in 1987 and it can be argued that this is no longer relevant to today’s high street.
Uses such as phone shops, nail bars, click and collect centres and fast casual grab and go food outlets weren’t even on the High Street at that time.
The order needs updating urgently as too many transactions are delayed or aborted due to draconian planning restrictions.
What is the future of retail property on the high street?
I believe there is still a future for our high streets, provided there is a genuine effort between landlords, local authorities and retailers to work together.
Occupancy rates, combining high rents with crippling business rates, are forcing in the main traditional and well established retailers to close their doors either voluntarily or through insolvency.
New exciting and innovative brands need to be encouraged to venture back onto the High Street and find a balance with their online sales platforms.
They can only do this if they are confident of making profits, which means that their occupancy costs should be no more than 15% of their turnover. This is impossible, particularly where landlords offer to share the risk by offering a lower base rent but with turnover top ups, sometimes as high as 25%. The sums don’t work so whilst the landlords pretend to be supportive, they still want their pound of flesh.
Government needs to act urgently in the forthcoming budget to slash business rates to help all retailers, not just independents. They also need to level up the playing field and address the off-shore internet giants who take massive sums of money out of our economy every day and avoid paying tax or business rates.
Their prices would need to rise to then give the high street a chance to compete.
Everyone still enjoys a day out shopping so long as its combined with some magic, theatre or experiential mix. There are places to eat, drink, relax and have fun adjacent to most of our high streets and shopping malls. It’s simply price that keeps customer from buying what they need in store as the savings can be massive on everyday goods online.
The time to act is now, before the demise is too great and our high street shops are turned back into residential properties, with the heart of smaller towns and cities ripped out of them.
Are lease agreements and rent reviews in their current form fair for independent retailers?
Modern leases and rent review clauses are unfair to all retailers. At DeVono Cresa we exclusively act for tenants. We spend every day fighting for occupiers to get a fair deal on their rent, both when acquiring premises and also on their rent review and lease renewals. It is completely unfair when in a falling economy affecting the rental values, landlords have a safety net of upward only rent reviews. For 40 years I have championed the tenants cause and attempted to agree leases without this bias, with limited success.
Various governments over the years have also looked at upward only clauses, but none have been brave enough to outlaw it, as their wealthy property company benefactors would throw their toys out of the pram and withdraw their donations.
The fact is, landlords should be grown up and robust enough to stop this themselves and give their tenants a chance to breath when things are bad and have the ability to reduce their rent when the market dictates at the rent review date.
The other problem is maverick tenants who rent properties or settle their rent reviews without taking professional advice. Landlords prey on these often innocent inexperienced operators and agree artificially high rents that they then use as evidence to seek higher rents from their other tenants on the parade.
The ‘village’ landlords with multiple ownerships in particular areas are masters of this tactic and can be extremely divisive, offering tenants what are perceived to be soft deals so long as they don’t tell their neighbours. These can turn out to be far from soft and the landlords then have the armoury to hit the rest of their tenants with over inflated rent demands.
I would encourage all tenants to seek professional advice when taking new premises or faced with a rent review or lease renewal.
What are your views on CVAs?
On the face of it CVAs appear to be a tool used by operators to ‘cleanse’ their business of unwanted underperforming and loss making stores, and a pile of debt.
I don’t particularly agree with the concept as businesses should be run efficiently without this safety net to fall back on. However, if it is used to persuade landlords to reduce rents in order to keep stores open and staff employed then I embrace it. This is exactly what the retail genius of our time, Mike Ashley, is doing with House of Fraser.
Where can we find out more about you and your company?
I have been working for retailers in the UK property market for over 40 years. I was the founding partner of Shelley Sandzer in 1983, which is one of the UK’s leading niche firms specialising in Retail and Leisure.
Today I head up the Retail and Leisure team at DeVono Cresa who are the UK’s largest tenant only property advisors. We advise over 500 companies a year on their real estate matters. Our Cresa partners have over 80 offices in all of the worlds’ major cities.
Our website www.devonocresa.com will provide all you need to know about us. It also contains our quarterly market update publication ‘The Occupier’, which gives regular updates across all commercial markets in the UK.
Philip Sandzer FRICS Director, Retail & Leisure Agency 020 7096 9911 firstname.lastname@example.org