Putting retailers and landlords together in a room for a day is always going to produce interesting results. No one needs reminding that the relationship between the two has been testing of late, as both sides struggle in the downturn.
What is good for one is often bad for the other, which is why there has been so much bad blood. But this year’s Retail Week Property Director’s Forum held in London on January 22 proved that the lines of communication are still open.
You only needed to glance at the day’s programme to see that it was not going to be without its edgy moments – monthly rents, upward-only rents, business rates, service charges… the list goes on. Of these, few have caused more frustration than the 2010 business rates revaluation, announced at the end of last year. With so many retailers and landlords against both the level at which the new rates have been set and the way the figure was reached, the mere mention of the topic was bound to cause a stir.
So when the forum’s first speaker, Asda retail development director Rob Swyer, stood up and spoke his mind, his words were met with widespread approval. He said: “How can it be that we take a point in time in September and apply that to the business rates for next year? I support the BRC’s position on rates revaluation. It can’t be fair to base rates on the point they did last year when we’re in such a state of flux.”
But Swyer was also optimistic that the problems with the current market present opportunities for retailers that are looking to move further into non-food, as Asda is. He said: “Food is stronger than non-food but on retail parks our Asda Living stores are seen as an attraction for customers. The problems [at retail parks] could be an opportunity to grow our footprint in non-food. At the moment we’re being thoughtfully acquisitive.”
One of the most controversial topics of the day was, unsurprisingly, the question of monthly rents. This particular debate has been gathering momentum for months and has been widely covered in the media, but retailers and landlords are not often seen sitting around a table and speaking their minds. Which is exactly what happened when Hammerson managing director David Atkins took to the stage to field some difficult questions from the predominantly retailer audience.
In response to a question on Hammerson’s monthly rents policy, he said: “Shopping centres are not cheap to build. There is a large cost that needs to be managed. We are under pressure from the banks and we need to react to that. We have granted monthly rents in the past.” He added: “Our policy is exactly in line with the BRC’s and the British Property Federation’s. If you are suffering we will convert quarterly to monthly, but it’s still a relatively low number of requests we’ve had.”
One of the sticking points in the monthly rent debate is the financial penalties landlords expect as a quid pro quo for making concessions. When pressed further on this, Atkins was frank about Hammerson’s line. He said: “We do ask for an additional charge to cover the admin costs of taking rent monthly. Our stance is that there should be a charge. There’s more of a credit risk because at any time you’ve only got one month’s rent in your bank account, rather than three.”
The subject of administration charges came up again later in the day during an afternoon debate. Dreams property director Ian Henderson was forthright on the matter. He said: “That’s not in the spirit of it. It’s like saying, ‘We will help you but we’ll also charge you’.”
And in the same discussion, Jessops property director Andy Bangs said: “The ideal would be that there was no charge, but if there has to be an admin charge it should be very small. The big institutional landlords tend to look at it in terms of ‘What’s in it for me?’ We’ve had some quite straightforward ‘nos’ from landlords on monthly rents.”
Bangs also warned that those retailers contemplating approaching landlords for a switch to monthly rents should not do so without proper planning to avoid sending out the wrong signal. He said: “We’ve been very careful to only ask for monthly rents when we’ve had the refinancing in place. We’re paying rent monthly to around 30 to 35 per cent of our landlords.”
Pre-packs and the new regime
Another source of frustration for both sides is that of pre-pack administrations. Widely viewed as a convenient way to simply dump the worst performers in a retailer’s portfolio, most agree that the practice should be regulated, if not stamped out all together.
In a cutting swipe at retailers that have used the pre-pack in recent weeks, Atkins said: “It’s legal but morally some retailers are really stretching it. There’s one well-known Scottish retailer that is not acting in the spirit of the industry. We could well see some [government] action of some sort.”
It was clear from the mood of the forum that most people realise the industry is entering a new phase. The days of unbridled expansion are over after about a decade of growth and this year’s forum was one of the first opportunities for all sides to take stock of the enormity of the change.
In a frank appraisal of the scene, Thorntons head of property Mike Barnett said: “This has been two-way traffic. We agreed to those leases and we gladly accepted the incentives but going forward the approach will be different. I cannot believe that the retail sector is not going to learn lessons from what we are currently experiencing. What we’re in at the moment is a spiral. There needs to be more liquidity for people to move in and out of shops.”
And in an even more cutting appraisal of why the industry has reached this point, Quintain Estates managing director of retail Phil Cottingham said: “Many retailers can look themselves in the mirror and say, ‘I did this to myself’. People have taken large incentives and this is a case of the chickens coming home to roost.”
Upward-only rent reviews
A source of headaches on both sides is the vexed question of the upward-only rent review. It is not as contentious as the issue of quarterly rents, but the fact most retailers are still forced to suffer increases in rent regardless of the market is nonetheless very real and many say justified.
As Charles Parkin, property controller at fashion retailer M&Co, explained: “The majority of leases in this country are still tied to upward-only reviews. Part of the problem is our industry. We’ve grown up with the view that values will only increase. Retailers think they’ve achieved something if they get a nil increase. If you’ve got rents that can only go up you can find yourself in a property that is toxic. You can’t get rid of it because nobody wants to touch it and it’s losing you money.”
But despite the various areas of disagreement, there was one thing that everyone at the Forum could generally agree about: both sides need each other. The finer details of how this can be done do not always seem clear, but the will to try was certainly there.
As Atkins said: “This is a symbiotic relationship. We are bed partners and we need to work alongside each other. There will be challenges for both of us. It’s a tough time for all of us and there’s a danger that we can lash out and the relationship can be strained but we shouldn’t take that to mean that it’s broken down.”
He added: “There’s a lot of lobbying to be done but I still feel that we do it from our separate camps at the moment and even lob the odd grenade at each other. The changes to the empty rates laws, for example, are a travesty – together we can give a very strong message.”
All the issues that arose at the Property Director’s Forum are causing very real, and in many cases very serious, problems for retailers, but every problem is an opportunity. As long as both sides are willing to sit down and speak their minds as frankly as the delegates at last week’s event, there is still hope that the problems will be solved.