Primark jumps on rent reduction bandwagon

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Rent reductions:

With “blood on the high streets�, retailers going into
administration and others obtaining rent reductions through the benefits of
CVAs, successful retailers are “seeing red�.

The CVA (company voluntary arrangement) is similar to the
personal IVA (individual voluntary arrangement), where an insolvency procedure
allows a company with debt problems, or one that’s insolvent, to come to voluntary
agreement with its creditors. This often means landlords accepting a reduction
in rent, store closures and consequently, rental values generally are
suffering.

So those tenants such as Primark who find themselves locked
into higher rents through existing leases see themselves at a disadvantage to
those other traders who have effectively been let-off their lease obligations.

Primark chiefs, says the The
Sunday Times, are calling for a 30% reduction in their own rents as a
result of feeling “hacked off� that other retailers are gaining a competitive
advantage from lower rents as a result of CVAs.

Primark is trading successfully through 189 UK stores but wants
to see its rent bill reduced on leases that it is locked into and have several
years yet to run. In return for reaching a compromise with its landlords,
Primark has said it is willing to invest in store refurbishments and enter into
longer leases.

Primark is joining other successful retailers who are
seeking to reduce rents to a level which reflects the changing retail property
environment. Next, and Waterstones the bookseller are thought to have secured substantial
rent reductions up to in the region of 30% when leases came up for renewal this
year.

Strong retailers are increasingly annoyed to see failing
businesses, competitors of theirs in some cases, benefiting directly by exiting
existing leases without penalty or achieving substantial reductions in rent.

Property Week
reports that fashion retailers Arcadia and Monsoon, like other well-known UK high
retailers, have managed to close unprofitable stores, while paying lower rents
for their remaining profitable ones.

One landlord told Property Week that Primark’s property team
has been instructed by senior management to go out and get rent reductions.

“They are looking at CVAs and are hacked off that they are
losing a competitive advantage. They want a slice of the action,� said this
landlord.

Landlords, on the other hand, are increasingly angry themselves
because they are losing income as result of CVAs, and some are challenging the
system. But ultimately many landlords have to accept rent reductions as being preferable
to driving their tenants into bankruptcy and being left with unoccupied premises,
a liability when they have to pay business rates and insurance bills.

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