News ID: 235891
Published: 1139 GMT December 16, 2018

Bleak midwinter for British landlords as retailers demand rent cuts

Bleak midwinter for British landlords as retailers demand rent cuts
Christmas shopping on Oxford Street

The Internet and tightened purse strings have hit stores, but indebted property owners are barely in a better position.

Here is an ugly fight going on on Britain’s high street’s for supremacy between the major retailers and their landlords. On one side are store chains that want to protect their sales margins, and on the other are landlords trying to maintain rental values, wrote.

Retailers have been on the losing side for some time, but a dramatic consumer spending slowdown seen over recent months could well strengthen their hand.

Sports Direct owner Mike Ashley certainly thinks so. He put himself center stage last week when he said that retailers were in shock after experiencing their worst-ever November.

Consumers, largely in response to Brexit uncertainty, kept their wallets and purses firmly closed in a month when the Black Friday and Cyber Monday sales were supposed to lift all boats.

It meant that November’s mega-shopping days highlighted what is now a double whammy for the sector. The much-documented switch from the high street to online purchases is compounded by the more recent reluctance of consumers to spend when Brexit could push the economy into recession next year.

In response to both trends, retailers have demanded that landlords drop their rents. In essence, shops are arguing that they no longer get the number of shoppers through the doors that they once did, and the resultant paucity of sales should be reflected in lower rents.

So far, retailers have found landlords unresponsive. The property owners prefer to look for another tenant than take the axe to their rents. Even pound shops and charity outlets pay more than the likes of Ashley, at least in the short term.

Landlords have two powerful allies – in the shape of local and central government. Business rates are calculated based on rental values, so it pays ministers and councilors to support higher rents.

Yet Ashley holds most of the cards. Not only is the Internet stealing more business from bricks and mortar shops with every passing month, but the consumer slowdown is also disproportionately affecting the physical high street. Dixons Carphone slumped to a loss of £440m in the first half of its financial year. Others have suffered similar losses. And Ashley is one of the few players in the game who isn’t loaded down with debt.

Most of the big landlords are up to their eyes in borrowed money. Earlier this year, Intu, the owner of shopping centers including Lakeside and the Trafford Centre, was the subject of a £3.4bn takeover bid that was abandoned a few weeks later. It was then offered £2.5bn by a new set of bidders, only for that to fall through too.

Analysts have warned that Intu’s loan-to-value (LTV) ratio – currently at 50 percent – could rise to the 60 percent limit of its bank borrowing agreements. This would require the company to sell around 40 percent of its assets to raise £2bn and reduce the LTV to 35 percent.

Intu is trying to persuade Ashley and other retailers to continue paying something near current rent levels to protect its value. But it is clear that the landlord’s defences are becoming weaker by the day. And that’s because the Brexit-fearing shopper is shoving Mr. and Mrs. Spendthrift aside.

Some retail analysts expect a rash of business collapses in the new year after meagre Christmas takings are banked. Others believe there will be a slow-motion crash of firms through 2019 as retailers – many over-borrowed themselves – attempt to keep the wheels of their businesses turning.

Whichever path retailers follow, the outcome is certain. Landlords across the country must lower rents, and councils must accept lower business rates. Not to feed Ashley’s profits – though rent cuts will do that – but to allow for a broader rebirth of activity on the high street.



Resource: the guardian
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