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Fall of Republic highlights the threat to landlords’ empires

There must be a lot of worried landlords out there at the moment.

This week’s latest retail casualty, Republic, fell into administration leaving more than 2,500 staff at risk and the future of its 121 stores hanging in the balance, and indications are that it won’t be the last company to go under before 2013 is out.

With the usual ‘white knights’ JD and Sports Direct unlikely to step in on this occasion, given they already own most of that part of the market anyway and could even face a competition enquiry if they decided to buy, where does that leave the high street? Vacancy rates are climbing, especially outside London, and with most firms divesting themselves of excessive retail estates as soon as they are able to, they will continue to do so over the next few years.

If Mrs Thatcher saw the UK as a nation of shopkeepers, then the future vision is for a nation with a lot more virtual shopkeepers with websites supported by a much smaller retail estate. Landlords can’t afford for stores to lie empty, especially given that a good number of them will have leveraged their own debt when property prices were at a pre-recession peak in order to add to their property empires. These large empires are now all but defunct as demand from retailers to rent them has fallen off, and where demand falls, so must rents.

The rise in repossessions caused by negative equity in the domestic housing market has largely been avoided because of the government strategy of keeping interest rates at record lows, but that same luxury will not afford landlords the same protection if retailers cease trading or simply give back sites. Forward-thinking landlords will have hedged their bets by investing in sites in new retail hubs such as out-of-town shopping centres or railway stations, but those not in that position will need to spread their net wider to fill the sites. Independents could benefit but only if landlords can flex rents lower while still covering their own overheads. Other landlords will look to leisure retail or even conversion for domestic use.

Either way this vacancy crisis, as it now must surely be termed, will have hit traditional landlords in the purse and must surely lead to a more balanced relationship between them and retailers. Store Twenty One recently wrote to its landlords to bargain for better terms, so it will be interesting to watch that relationship. Many landlords are already offering good terms on pop-ups, for example, to give them a bridge when sites become vacant, and could it be that we might even see a system in some sites where rent is based on turnover?

As ever though, London has its own rules, and from what I hear rents are actually going up in key areas as luxury retailers and international players snap up flagship store sites. One source told me this week that he left his site in the Mayfair area when the Russian landlord attempted to put the annual rent up threefold.

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