The UK high street, the quintessential symbol of UK property, is caught up in a whirlwind of forces. This article summarises the key issues and strategies facing Landlords. The Prideview Group are renowned commercial property consultants, and it’s critical that anyone affected by, or interested in capitalising on, today’s unique market conditions, should contact us.
To view the original article in the FBI Magazine, alongside Pride Management's and Bircroft Insurance Services's advertisement, please click here.
The main adverse forces shaping our high streets include online commerce, out-of-town retail parks, the shortage of bank lending and the prolonged consumer squeeze. Conversely, several elements still weigh in its favour, such as soaring fuel prices, the rise of independents and the convenience factor.
Many service and leisure businesses are unaffected by online competition, of which those that don’t rely on discretionary spending are prospering, such as fast-food restaurants, JD Wetherspoon-type pubs, mechanics, hair salons, pharmacies, funeral parlours and dentists. With the consumer squeeze being as tight as ever, it’s hard not to notice the proliferation of pawnbrokers and pound shops such as 99p Stores, as well as charity shops (who pay no business rates). Other ‘pro-recession’ businesses include betting shops and adult gaming centres, perhaps due to their low-stake but high-reward, aspirational nature.
But the essence of any high street is its large, residential catchment, which is set to increase following recent legislation facilitating the creation of flats above commercial units. The convenience factor has never been so important with fuel prices rocketing and a population working harder than ever, so it’s no surprise that Tesco’s & Sainsbury’s have recently announced they will be focusing investment on their convenience stores.
Properties let to any of the above tenants and in prime locations command top values – the time may be right to sell and we have buyers. But interestingly, we are seeing excellent yields on properties in secondary locations let to independent tenants in comparable businesses. The independent tenant is proving resilient - they are extremely committed to the units they occupy, and have a greater affinity to the local population, but investment in these properties should only be done with expert advice.
It’s estimated that up to 40% of high street tenants are stressed, so Landlords need to pay closer attention. With online commerce forecast to comprise 14% of retail spend by 2015, many retailers, and in particular film, music and gaming shops are under pressure, as seen by the recent administration of Game. With half of all high street tenancies expiring in the next four years, and many multiples like The Arcadia Group committed to reducing their store portfolios, Landlords should seek advice or pay the price.
Any tenant looking to vacate faces dilapidations and possibly relocation costs, and most individual Landlords don’t realise this. We serve the right notices at the right times, bringing tenants back to the negotiating table. In such negotiations, Landlords need to make concessions. The easiest way is by reducing tenants’ insurance premiums, something our management arm Pride Management has done for hundreds of properties this year via Bircroft Insurance Services, one of London’s larger brokers. Other options include offering rent-free periods, shorter leases, monthly payment plans or even reduced rent. Each property differs, as does each tenant, and what works for one doesn’t necessarily work for another.
Finally, with vacancy rates already averaging 14%, we represent numerous Landlords with vacant properties. It’s essential to act quickly, and market your property aggressively and locally, noting that independents opened 3 times as many stores as multiples in 2011. Again, the right incentives need to be offered, and a change of use may be required to attract good tenants.
Meanwhile you will be liable for the building insurance, business rates and bank interest - we can arrange minimal premiums (note that vacant building’s insurance cover is restricted and subject to adequate security measures and regular inspections) and can assist with rates relief applications and bank negotiations.
In conclusion, it’s important to reiterate that the high street is not dying – it’s being reborn. Consequently the nature of property investment and management is changing, and Landlords need to keep up. Every property location is different, as are the financial circumstances of both tenants and Landlords, and accordingly only a tailor-made solution will ensure you find the optimal strategy for your investment.
By Nilesh Raj Patel, Consultant at The Prideview Group, in the Finance, Banking & Insurance Magazine '12 (Asian Voice).