Landlords are taking a bigger and bigger slice of retailers' profits by hiking up their rents. Simon Linacre investigates
Rents paid by independents have always been among retailers' main bugbears. While those who own their property avoid forking out for rent, their stores are often in areas of low customer traffic. Rented units, typically in a row or parade of outlets, enjoy the high footfall all retailers crave - but have to pay for it. The advantage of location is one lever being used by landlords to hike rents again and again. Increasingly, retailers are being forced to ask: what can stop them?
The issue of pernicious rent increases reared its head in the West Sussex town of Crawley recently. There retailers face massive rent rises after the local council issued bills following a protracted rent review dating back almost five years in some cases. Several newsagents and convenience stores in the town have been clobbered, including Tilak Raj, manager of a Londis store in the town's Furnace Green area. He says retailers in the area have been hit hard by the hike. "We have had our rents put up 100%. In my case the bill has gone up from £9,750 to £19,500 a year," he says.
"The increases affect three parades of shops, but they have brought all the shop owners together and we are appealing to an independent judge. The council is also coming down here to meet us."
The leader of Crawley Council, Bob Lanzer, told Convenience Store that he is sorry for the delay in reviewing the rents. "It is true that we did outsource the rent review process, and there may have been some delays when this took place. But I am pleased to say we are back on track."
He adds: "We're trying to be as flexible as we can when it comes to paying backdated rent, for example, with payment plans for retailers. Generally speaking, though, it is prudent for retailers to take precautions when they know that rent reviews will take place in the terms of their lease."
Lanzer says the council is sympathetic to the retailers' plight, but urges them and others around the country to keep track of what is happening in the property market to avoid being caught out in future. "Looking around you can see that retail rents are going up. Retailers can look at the prices of comparative parades, and the state of private properties as well, and should make reasonable provisions for the future," he says.
Disputes with council landlords are not limited to county towns. Central London retailer Jay Patel, who runs PJ Murray newsagents in Bloomsbury, is all too familiar with the problem of dealing with councils. Camden Council recently increased his rent by 25%.
"We are tenants of Camden Council and the shop is in an old street called Woburn Walk, just off a main road. It is one of a few Victorian-style shops and we are currently facing a rent increase without any proper justification. The council has asked us to pay £20,800, up from £16,250 last year," says Jay.
The trouble began when a new tenant moved in two years ago. "They agreed to pay £15,500, even though the average was just £11,000 for the rest of us," says Jay. "Consequently, the council has put the rent up for everyone - I pay proportionately more because I have accommodation on the premises. The new tenant didn't know what we paid and just agreed the rent.
"We have all signed a petition complaining about the increase, but the council says that if one pays the higher rent, we all have to pay. However, there are several reasons why there should be no increase. A hotel has been under construction for the past two-and-a-half years, which has blocked the street and reduced footfall. We are also near Tavistock Square, where one of the bombs went off in the 7/7 attacks, and people have taken a long time to come back to the area. And the promised King's Cross Channel link, which would have brought a lot of tourists into the area, has been delayed."
Jay says that what makes the matter even more galling is that a row of shops opposite his, which are exactly the same but privately owned, are actually paying less per square foot than he is. "I thought council tenants paid less," he says. "The National Federation of Retail Newsagents is looking at it for us, but I think I may just have to pay up because the simple fact is that the new tenant has paid more. However, she may be the first to go out of business because she doesn't seem to have much trade."
So what can be done to help retailers protect themselves against huge rent increases? The British Retail Consortium (BRC) has recently launched a campaign with the backing of several other retailer bodies, including the Association of Convenience Stores, to allow store owners the right to pay their rent monthly in arrears, instead of every three months in advance.
There is also pressure to change the law that governs commercial property to persuade landlords to accept the same payment terms as other creditors.
The BRC estimates that paying rents in advance costs UK retailers an additional £145m a year. BRC director general Kevin Hawkins says the status quo must change. "At a time when retailers are being squeezed by rents, rates, service charges and utility bills rising well above inflation and shop prices that are actually falling, this costly, centuries-old practice takes some justifying."
The ACS says it is right behind the BRC rents campaign and has lent its support to a campaign website (www.rentmonthly.org.uk).
The size of the pie
It is notoriously difficult to get a national picture on the retail rental market, however some recent research shows that May this year saw the highest increase in commercial rents for five years, with an average hike of 2.9% on the previous year.
According to the Royal Institution of Chartered Surveyors' (RICS) UK Economic Brief (June 2006), this increase was due to good occupancy rates, but mainly fuelled by the office sector. There were no figures available for the retail sector. However, another report by RICS partner Investment Property Databank shows rental value growth up 3.3% in the year to March 2006, far ahead of office rentals (2.2%) and industrial rentals (1.1%).
Perhaps of even more interest is a recent survey by the RICS on tenant satisfaction. The RICS Tenant Satisfaction Index shows tenants have a high level of dissatisfaction with the service provided by landlords. The 2005 Tenant Satisfaction Index score stands at 39, a figure that describes "a broadly dissatisfied group of customers". The report deals mainly with large retailers, however it is hard to imagine smaller independents voting differently.
If the above reports are to be taken at face value, the pressure on rents should be decreasing, and certainly not showing 100% rises. Rent increases in the retail market seem to be ahead of other sectors, while tenant satisfaction and the overall retail market are low - yet the increases continue.
The issue is clearly one that unites retailers of all sizes and we have to hope that the campaign by the BRC and ACS, which has already garnered a lot of press coverage, will put political pressure on local and central government to ensure rent increases are kept in check.
Rents paid by independents have always been among retailers' main bugbears. While those who own their property avoid forking out for rent, their stores are often in areas of low customer traffic. Rented units, typically in a row or parade of outlets, enjoy the high footfall all retailers crave - but have to pay for it. The advantage of location is one lever being used by landlords to hike rents again and again. Increasingly, retailers are being forced to ask: what can stop them?
The issue of pernicious rent increases reared its head in the West Sussex town of Crawley recently. There retailers face massive rent rises after the local council issued bills following a protracted rent review dating back almost five years in some cases. Several newsagents and convenience stores in the town have been clobbered, including Tilak Raj, manager of a Londis store in the town's Furnace Green area. He says retailers in the area have been hit hard by the hike. "We have had our rents put up 100%. In my case the bill has gone up from £9,750 to £19,500 a year," he says.
"The increases affect three parades of shops, but they have brought all the shop owners together and we are appealing to an independent judge. The council is also coming down here to meet us."
The leader of Crawley Council, Bob Lanzer, told Convenience Store that he is sorry for the delay in reviewing the rents. "It is true that we did outsource the rent review process, and there may have been some delays when this took place. But I am pleased to say we are back on track."
He adds: "We're trying to be as flexible as we can when it comes to paying backdated rent, for example, with payment plans for retailers. Generally speaking, though, it is prudent for retailers to take precautions when they know that rent reviews will take place in the terms of their lease."
Lanzer says the council is sympathetic to the retailers' plight, but urges them and others around the country to keep track of what is happening in the property market to avoid being caught out in future. "Looking around you can see that retail rents are going up. Retailers can look at the prices of comparative parades, and the state of private properties as well, and should make reasonable provisions for the future," he says.
Disputes with council landlords are not limited to county towns. Central London retailer Jay Patel, who runs PJ Murray newsagents in Bloomsbury, is all too familiar with the problem of dealing with councils. Camden Council recently increased his rent by 25%.
"We are tenants of Camden Council and the shop is in an old street called Woburn Walk, just off a main road. It is one of a few Victorian-style shops and we are currently facing a rent increase without any proper justification. The council has asked us to pay £20,800, up from £16,250 last year," says Jay.
The trouble began when a new tenant moved in two years ago. "They agreed to pay £15,500, even though the average was just £11,000 for the rest of us," says Jay. "Consequently, the council has put the rent up for everyone - I pay proportionately more because I have accommodation on the premises. The new tenant didn't know what we paid and just agreed the rent.
"We have all signed a petition complaining about the increase, but the council says that if one pays the higher rent, we all have to pay. However, there are several reasons why there should be no increase. A hotel has been under construction for the past two-and-a-half years, which has blocked the street and reduced footfall. We are also near Tavistock Square, where one of the bombs went off in the 7/7 attacks, and people have taken a long time to come back to the area. And the promised King's Cross Channel link, which would have brought a lot of tourists into the area, has been delayed."
Jay says that what makes the matter even more galling is that a row of shops opposite his, which are exactly the same but privately owned, are actually paying less per square foot than he is. "I thought council tenants paid less," he says. "The National Federation of Retail Newsagents is looking at it for us, but I think I may just have to pay up because the simple fact is that the new tenant has paid more. However, she may be the first to go out of business because she doesn't seem to have much trade."
So what can be done to help retailers protect themselves against huge rent increases? The British Retail Consortium (BRC) has recently launched a campaign with the backing of several other retailer bodies, including the Association of Convenience Stores, to allow store owners the right to pay their rent monthly in arrears, instead of every three months in advance.
There is also pressure to change the law that governs commercial property to persuade landlords to accept the same payment terms as other creditors.
The BRC estimates that paying rents in advance costs UK retailers an additional £145m a year. BRC director general Kevin Hawkins says the status quo must change. "At a time when retailers are being squeezed by rents, rates, service charges and utility bills rising well above inflation and shop prices that are actually falling, this costly, centuries-old practice takes some justifying."
The ACS says it is right behind the BRC rents campaign and has lent its support to a campaign website (www.rentmonthly.org.uk).
The size of the pie
It is notoriously difficult to get a national picture on the retail rental market, however some recent research shows that May this year saw the highest increase in commercial rents for five years, with an average hike of 2.9% on the previous year.
According to the Royal Institution of Chartered Surveyors' (RICS) UK Economic Brief (June 2006), this increase was due to good occupancy rates, but mainly fuelled by the office sector. There were no figures available for the retail sector. However, another report by RICS partner Investment Property Databank shows rental value growth up 3.3% in the year to March 2006, far ahead of office rentals (2.2%) and industrial rentals (1.1%).
Perhaps of even more interest is a recent survey by the RICS on tenant satisfaction. The RICS Tenant Satisfaction Index shows tenants have a high level of dissatisfaction with the service provided by landlords. The 2005 Tenant Satisfaction Index score stands at 39, a figure that describes "a broadly dissatisfied group of customers". The report deals mainly with large retailers, however it is hard to imagine smaller independents voting differently.
If the above reports are to be taken at face value, the pressure on rents should be decreasing, and certainly not showing 100% rises. Rent increases in the retail market seem to be ahead of other sectors, while tenant satisfaction and the overall retail market are low - yet the increases continue.
The issue is clearly one that unites retailers of all sizes and we have to hope that the campaign by the BRC and ACS, which has already garnered a lot of press coverage, will put political pressure on local and central government to ensure rent increases are kept in check.
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