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Retailers see bright side of empty shops

Landlords are having to be more flexible with rents and leasing terms in a bid to stem the tide of empty shops blighting the UK high street

High street womenswear chains Warehouse, Coast, Oasis and Karen Millen were rescued from administration by new company Aurora Fashions last week after the collapse of parent company Mosaic Fashions.

Principles was left behind by the deal and, after failing to find a buyer for the chain as a going concern, administrator Deloitte sold off most of its stock to department store Debenhams. Some 66 of its shops closed on Saturday. The rest are expected to shut at a later date. Principles’ 85 stores will be the latest in a slew of retail properties that property agents are being asked to find tenants for.

Almost 300 stores in locations including the Bullring in Birmingham, Gateshead MetroCentre and Meadowhall in Sheffield came onto the market last month, as administrators prepared to close 220 Barratts and Priceless footwear stores, and JJB Sports’ 77 Original Shoe Company and Qube footwear shops.

Elsewhere, discount menswear chain The Officers Club, branded young fashion chain USC, kidswear chain Adams and womenswear retailer Viyella all recently rose from the ashes with a trimmer store portfolio.

Running on empty

Both landlords and retailers are faced with the prospect of an unprecedented number of unsightly empty units threatening the integrity of the typical high street and
shopping centre.

Even before the recession there were fears that the amount of new retail space in the pipeline - eight million sq ft opened last year - was excessive. That figure now seems relatively tame compared with the prospect of what could happen on the high street as the recession continues.

One retail agent, who is instructed by several high street chains, says: “There is a massive oversupply of space. If you add up the administrations and the prepacks, plus the fact that about 15% of last year’s new space is still available, and leases will be expiring that won’t be renewed, it means there is about 14 million sq ft on the market. And a lot of it is dilapidated.”

However, the silver lining for retailers performing well, or wanting to expand, is that landlords are being forced to be more flexible. While landlords recently vetoed footwear group Stylo’s request to renegotiate leases to save jobs as part of a Company Voluntary Agreement (CVA), presumably to avoid opening the floodgates to similar demands from other struggling retailers, the fact remains that the balance of power has shifted significantly towards the retailer.

Another retail agent says: “Stylo’s deal was a step too far; they [the landlords] were never going to go for it. You have to be more sensible. There are lower rents and rent-free deals around, especially for non-prime space.”

Retailers hope it is not just new stores that will benefit from better deals. Aurora Fashions is understood to be negotiating with landlords for easier terms on some of its rescued stores. According to reports, it is looking to pay rents equivalent to 10% of each store’s turnover instead of annual rent fees and is also asking for rent-free periods for some shops. Whether this request is more palatable to landlords than Stylo’s remains to be seen, but it is likely that some underperforming stores will be jettisoned in the process.

According to property sources, there is one consequence of all the ditching of stores that threatens to bite some retailers where it hurts. Some businesses are going through leasing agreements to check their obligations under privity of contract - an agreement which determines ultimate liability for leases that have been reassigned.

Retailers who assigned their leases to another retailer, or effectively sublet stores, which have subsequently gone into administration, could find that liability reverts back to them, landing them with a potentially large rent bill.

Retailers have been battling with landlords to pay monthly rent rather than quarterly payments, and many have struck deals. A store’s closure for the landlord means a loss of rent and the headache of finding a new tenant in a difficult market.

This recession is unchartered territory for retailers and property firms, and both are realising they need to work in partnership to see the UK’s retail sector through the
downturn.

Closing down

Recent store closures:

  • Barratts and Priceless 220
  • Adams Kids 147
  • Principles 85
  • Original Shoe Company 64
  • The Officers Club 32
  • USC 15
  • Qube 13

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