Once upon a time the high street was packed with household names. High footfall, consumer confidence and disposable income all made for fairy-tale returns for retailers and landlords alike. High streets are now experiencing unprecedented challenges and many former powerhouses of consumer retail parks now find themselves consigned to history with Mothercare and Thomas Cook being recent victims. Even Vodafone has closed 1,100 stores. It is not just the retailers themselves feeling the pressure. Owners of shopping centres and large property portfolios are also feeling the strain.
Institutional landlords are feeling the downward pressure on like-for-like net rental income and property values, generally resulting from a higher level of administrations and company voluntary arrangements ("CVAs") as retailers struggle to adapt to an evolving marketplace.
These are exceptionally tough times for retailers. Online shopping has long been in the ascendancy, crippling business rates add to the strain. Consumer spending remains tight, as recent Christmas trading updates have shown. All of this ultimately impacts valuations of the landlord's asset.
As this trend continues, retail tenants are becoming more commercially astute, rethinking traditional leasing arrangements. It has recently been reported that retail tenants, such as Hotel Chocloat, are pushing for terms to be negotiated such that, if a neighbouring tenant benefits from rent reduction as part of an approved CVA, they will also have their rent reduced to the same level – refusing to be penalised for being successful and subsidise the rent cuts for less successful rivals.
Retailers are looking for more flexibility when signing leases, with more break clauses and less commitment to the future. This is at odds with the landlord's desire for stable revenue streams and more importantly, certainty of value. Retail casualties and empty retail units are forcing owners of shopping centres, retail parks and other large property portfolios to consider restructuring their investments – be that via refinancing or realisation.
Many investment properties of this nature are held in tax neutral structures such as Jersey property unit trusts, Guernsey property unit trusts and passive holding vehicles and at Appleby, we are well positioned to advised lenders and landlords alike on such arrangements.
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