As Larry Elliott has noted in the Guardian this morning, the September rent payment day (businesses usually pay their rent quarterly) might be particularly stressful for many retailers. He quotes Helen Dickinson, the British Retail Consortium's chief executive, saying:
“With rents accumulating and the September quarter payment date fast approaching, many retailers are hanging on by a thread. Unless businesses and government can successfully persuade office workers back into city and town centres, some high street retailers will be unable to afford their fixed costs. Government will need to act fast or September will see more shops close and more job losses realised.”
I admit that I can take issue on several grounds.
The first is that this is not just a large city issue. I have only to go into the centre of the very small city (of less than 20,000 people, but a city, nonetheless) where I live to see that many, if not most, retailers are suffering a reduction in footfall, and that the viability of many must be at risk as a result. To presume in that case that this is just a large city issue relating to the return to work appears to be wrong.
So too is it wrong to think that this is going to change any time soon. Coronavirus cases are rising. R must be above 1. Like it or not, many people who have an option are not going to be returning to work or shopping, come to that, any time soon.
And in that case the ‘return to work' is not the issue here. The cost structure of retailing is that issue. And what is wrong with that cost structure is rents.
I have written more than I realised on issues relating to coronavirus and rent, as a Google search showed. I will make no apology for reiterating my point now. That point is that it is not a lack of custom that is killing retail business right now. Nor is it staff inefficiency. It is rents that are killing businesses at present.
Helen Dickinson Was right to mention this issue. Rent days are always crunch time for retail business, when cash flow is squeezed to the limit. There will be many who if they manage this quarter won't manage the next as by then additional deferred tax payments will also be looming.
My point is a simple one. Cities can survive this crisis. So too, to some degree, can city centre employment. But city centre rents can't. Either landlords smell the absence of coffee now, and begin to reduce rents; or the government needs to impose rent reductions on them, compulsorily, or landlords can force their tenants out and then wait forever for another tenant to come along offering vastly reduced rent, come what may. Whichever the option landlords are going to, and need to, lose heavily. There are just better and worse ways for them to do so.
None of this is rocket science. Rent is not a payment due to land after all. It us payment to people who for, whatever reason, control a scarce resource and who can as a result skim a part of the income of those who work for a living for the right to occupy that scarce land.
If that land ceases to be scarce, and that is clearly what is going to happen, rents will collapse, come what may. The only choice in the matter is whether or not the reductions in rents are going to happen before or after landlords force vast numbers of people into unemployment and gut our city centres in the process.
Based on precedent, I strongly suspect that they will go for the mass destruction option. But if they do I sincerely hope rent reform will feature very high in future political agendas. Destroying wellbeing for the sake of landlords should not happen in the twenty first century. But it is very likely that it will, and the political rebound has to be sharp, and very effective.
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Totally correct. So much of the UK ‘economy’ is built on commercial property developers relying on ever increasing demand/growth. Time for them to get real, as opposed to whispering through networks to their Tory minister pals about getting people back to Pret.
Have you seen the article in the Times Thursday March 23 2017, 12.01am, Richard? It appears if pushed retail space is being repurposed as substandard housing using PDR which has just been extended “One room, one window: the ‘cells’ for rent coming to your high street”. I cannot see even at this density they will replace commercial property rents. We definitely need a better solution as you suggest.
You do not even need a window, There is effectively no rules or regulations on this type of development.
Rents….yes indeed. If the UK can be characterised as essentially a rentier economy, with a rentier-shaped govt it would seem unlikely that the govt will ‘impose’ rent reductions. Re-prioritising the real economy, as against the rentier/finance sector would be a reversal of a 30 year trend, and so sort of revolutionary..
The govt did did ban residential tenant evictions earlier this year, so maybe they might impose some time for renegotiation of rents between landlord and tenant.
It has long been argued that rents should be related to sales or profits of the occupier…but difficult to see how this could be brought in as a short term emergency measure… It’s also complicated by the desirability of having a wide variety of retail occupiers with a wide range of sales/profitability in a shopping street .-
So, as I suggested several times, rent right offs have to be imposed by law
A special form of insolvency maybe: insolvent only with regard to your ladlord
Very well argued case. As you will be more aware than myself, almost certainly, the government will be extremely reluctant to further interfere in what it likes to call (misleadingly) the ‘free market’ with what it would call ‘red tape’ and more ‘regulations’.
As I hope you will agree, a balanced economy is in so many ways a collaborative enterprise between a state which is elected to provision itself for the public purpose, and the private sector which prospers from that spending and is free to pursue profit as long as they observe laws and regulations designed to prevent harm to public welfare.
I agree
… the landlords will just wait it out… they can afford to… their cash is safely stashed where the law doesn’t shine…
Not true re tax for most of them, in fairness
While this relates to residential rather than commercial property this article by George Monbiot is worth a read
https://www.monbiot.com/2019/07/19/private-taxation/
In particular the description of rent as ‘Private Taxation’
Smaller landlords are perhaps more likely to adjust rents by taking a sensible business view. Institutional landlords value base their freehold valuations on a factor of the rent chargeable. If they reduce rents then they have to write down their assets. It is of course a total fiction and makes no sense, but I think it remains.
Retail rents will fall, just far too late to be of any use.
Retail in City and Town Centres has been declining before Covid-19, it has now simply been accelerated.
What is concerning is the lack of any plans for moving forward, let’s be honest, there was no plan before all this started.
Where is the plan for sustainable City/Town Centres were people can live and enjoy leisure time?
Where is the infrastructure plan.
As much as I hate to say it, anyone with reasonable capital who can buy empty retail property in a semi-decent Town Centre could investigate planning rules and convert it to much needed residential housing.
We need to move away from chain stores, department stores and chain restaurants, their time has been and gone, never to return.
We have plenty of sustainable tourism potential in many of our major Cities and Towns, with things like canals, museums, outdoor pursuits etc… within easy distance, backed up by upgraded transport infrastructure of course.
But no, all we hear is the need to save chain sandwich and coffee shops.
Where are plans for City parks?
Education and leisure?
I could go on but I’d be here all week.
Betting shops, coffee shops, nail-bars, burger flipping etc are all generated by the ‘free market’ and therefore considered (more accurately ‘worshipped’) as real businesses generating ‘real jobs’ and ‘real money’. This is the post Thatcher ideology that has prevailed for nearly half a century and is deeply embedded in our culture, as evidenced from time to time by some visitors to comments on this blog! Maybe this time it will be different.
Might it not be that most in this sector are highly leveraged? Could this not lead to a domino effect?
Yes
Baks will be writing off a great many loans very soon
In which case those seeing the matter purely as one of short sighted selfish landlords (I am neither a landlord nor invested in a REIT) may be misconstruing a much more complex and dangerous problem. Although the many additional layers of financialised leverage appear to be missing this time, the originating mortgage debt problems are likely to be greater than 2007.
I suppose if the Queen & her aristocracy owned all the land, outright, they wouldn’t have the problem. Perish the thought, but I bet there are some who would argue that case rather than allow the democratically elected state (debatable) directly support renters and mortgage holders through this crisis.
Just to remind folks. Retailers have suppliers who have rents. Often the largest fixed cost. As retail declines….. As a manufacturer I have done everything necessary to help the business survive into next year. The short period of trade we have had would make me confident that with sufficient changes we will be able to survive if we make it through to May next year. The major obstacle here is the rent as we approach what is for us the leanest period of the year even in normal times. We do not have a “traditional” rentier landlord, we have a council who have deferred rents for 6 months and would like us to now start paying rent again but at 1.5 times the normal rent for the next 12 months. They would also like this as a signed agreement otherwise all that is owing becomes due now. As part of that agreement there is a non disclosure clause. Why ? Is that because some business will get a deal and they want them to keep quiet about it? Whatever else their stance is, shall we say, not very helpful.
I’d say they are trying to create unemployment
Absurd
Councils are currency users and subject to the same kind of financial constraints as households. Unlike households, the bailiffs will not arrive in force at Council Chambers. But there will be political pressures of all kinds stemming from Central Government, which by contrast is not so constrained financially, and should build proper inflation and productivity forecasting analysis into its modelling instead of the usual nonsense.