Property Advisers Question Next Move of Retail Chains in Market Turmoil.
News this week that Primark is among a small group of stronger retailers bargaining with landlords for a 30% rent cut on dozens of stores, in an effort to close the gap with struggling rivals, has begged the question- where now? - from business rates specialists at Colliers International, who fear business rates liabilities might be next on the target list.
In the year of the CVA, several struggling retailers have used insolvency procedures to reduce liabilities. In the last few months Sir Phillip Green’s Arcadia, Debenhams and Monsoon Accessorize all used the CVA process to close stores and slash rents, putting them at an unfair advantage to other retail chains.
And in two CVAs they requested, and were allowed, business rates holidays. Colliers estimated that through the Arcadia and Debenhams' CVAs alone, more than £30 million of business rates, that should have been paid to local authority creditors, have been written off.
“The traditional landlord and tenant market seems to have been turned on its head at the moment." says John Webber Head of Business Rates at Colliers International, “Not only are retailers achieving rent reductions when they are renewing their leases, but the fact that some like Primark are demanding cuts before lease expiries underlines the pressure facing landlords. According to press reports Ann Summers and Schuh are said to be pressing for immediate reductions too.”
“I can’t see this stopping at rents. As business rates bills have risen to become a 50p tax on businesses occupying property and are increasingly unaffordable, rates will surely be the next in the firing line.”
Webber continued, “Last week Mike Ashley said a number of his House of Fraser stores were not profitable, even where the rent had dropped to zero. Given business rates are one of the key costs, it does not take too much imagination to see local authority being asked or given an ultimatum whether they are prepared to take reduced business rates liabilities from some stores in order to keep stores open and workers in jobs in some areas.”
Last year nearly 150,000 jobs were lost in the retail sector and 20,000 outlets were closed
The picture for 2019 so far has not been any rosier and local authorities are worried about the impact this has their local communities. However, any loss of rates receipts does puts extra pressure on the public purse.
“This is why we have been campaigning for business rates reform “adds Webber. “Unless this iniquitous system is properly reformed and the 50% tax take reduced to something more viable, retailers will continue to get into trouble financially and the knock-on impact for landlords, pension fund holders and local authorities are huge, as we are now seeing.”
Primark now seems to be taking the lead on rental reductions. Colliers has estimated it pays a rates bill of £72 million on its 189 UK stores and has some with very high bills- the Oxford Street Primark, for example, pays business rates of £3.327 million a year.
Whether rates follow rents as the next negotiating tool on the table, is certainly not out of the question.