How does Primark hold the key to retail rents?

Last month our commercial property team looked at Arcadia’s attempt to negotiate rent reductions with the help of CVAs. Since then, more high street retailers are following suit and we look at what the future holds for commercial leases.

Our article in July ‘Arcadia propose CVA to their landlord Intu’ discussed the difficulties faced by Arcadia in keeping its various high street enterprises afloat and, in relation to commercial property particularly, its efforts to engage its Landlords with proposed company voluntary arrangements in order to secure rent reductions, some as high as 50%. Some of those arrangements have had a tangible impact on the shopping experience of its customers, with several of its ventures now cohabiting, such as in its Lakeside store in Essex.

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In the meantime, The Royal Institute of Chartered Surveyors released its RICS Commercial Property Market Survey on the commercial property rental market on the 25 July 2019 with news that, following a negative first quarter, the United Kingdom’s retail property market remained in negative territory. Main points included:

• Tenant demand was still down.
• Property availability still up and therefore prime and secondary retail rents are ‘falling by around 3.5% and 7% respectively’.
• Retail rental expectation and retail capital values also remained in negative territory, which look set to continue.

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With a depressed retail property market and established high street retailers approaching their Landlords with detailed CVAs, the latest of which is thought to include shoe retailer Office, it comes as no surprise to hear that the more profitable retailers are considering their options and strategies to ensure they retain a competitive advantage.

Retailer Next had announced, leading into 2019, that it had secured reductions to its rents of around 29% (on average) by negotiating lower rents at the time of its lease renewals, with Waterstones also thought to have followed suit.

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Discount clothes retailer Primark, whose presence in the high street is of benefit not just to landlords, are the latest of the established high street retailers looking to exploit the negative trend in the retail property market. Primark stores are on the larger size, with its Birmingham store offering a beauty studio, an in-house barbers and three different dining experiences. It offers shopping centres and other retail outlets an increase in footfall, not least because they are yet to take a full step into the world of ecommerce.

With the costs of remaining on the high street rising, the government appearing to be increasingly driven to a “no-deal” Brexit, and the pound falling, even the more successful bricks and mortar retailers are doing what they can to retain their competitive edge.

But not only is Primark able to offer shopping centres like Intu and its landlords increased footfall, it plans to approach them with offers of longer leases and other incentives, such as more investment in its stores, in order to secure the rent cuts it desires.

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If the negative trends continue, do not be surprised if other high street retailers undertake the same tactics. Superdry founder Julian Dunkerton suggested, as quoted in the Financial Times, that if rent cuts could not be achieved for those stores approaching lease renewal, Superdry would simply “shut the stores”. 

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There are often strategies available to tenants of all types. Our Commercial Property Lawyers are experienced in approaching parties to discuss, agree and formalise a range of options when dealing with a single or portfolio of commercial premises.

This article was written by Ben Hersom, Solicitor in the Commercial Property Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of August 2019.