Of 600 London restaurant, bar and leisure operators, 90% of have said if rents and rates increase as forecast then their businesses will be unsustainable.
That is according to leisure property consultancy Cedar Dean Group’s (CDG) Restaurant Rents Report 2018, in which 84% of those surveyed described their current rents and rates as high or unsustainable for their businesses.
Central London has seen rent hikes over the last few years outpacing those seen in the rest of the capital, and tenant security is also diminishing, making it harder for restaurateurs to hold on to their properties.
Restaurants are reportedly spending an average of 21% of their turnover on rent, up from 16% last year. Historically, the maximum percentage of turnover spent on rent should be 12%.
Roger Payne, chief executive of the Camden Dining Group, said: “A number of restaurants are in serious trouble at the moment, predominately related to the rents and not assisted by legislation.
“Historically, the most successful rents have been under 12% of turnover, and as restaurants have needed to expand, landlords have taken advantage and rents have crept up because of demand.”
The Landlord & Tenant Act 1954 gives tenants the right to have a renewable lease on the same terms as their original lease, but more than a quarter of operators said their leases now don’t fall under the Act.
Leonid Shutov, owner of Bob Bob Ricard restaurant in Soho, said: “Leases within the act shouldn’t be optional or at the discretion of the landlord. The average leaseholder today has no protection whatsoever; they can’t rely on the Act.
“Restaurants are small organisations; many of them are one-off independents. It is much more difficult for them to have the inside knowledge to find this information and not having a transparent system sets them up for failure.”
CDG predicts the situation will lead to more remote central kitchens, an increase in reverse premiums as landlords struggle to shift empty space, and an exodus of restaurants from central London in favour of fringe locations or cheaper regional cities.
The report calls on landlords to subscribe to an “affordability statement”. In the case of operator rents and rates exceeding 25% of turnover, landlords could provide a rent concession, during which a lease could not be assigned until arrears were made up.
David Abramson, chief executive of Cedar Dean Group, said: “We always knew that the upward-only rent review system created a cliff-edge ending for operators, but these latest statistics are much worse than what we saw a year ago. Rent and rates are coming in at circa 30% of turnover which, at double the industry standard, is not sustainable.
“One thing the past few months have shown is that high rent and rates are not just affecting businesses that need to improve, but also operators that invest substantial sums in the capital, including the likes of Jamie’s Italian and Byron, who have both suffered closures.
“It is plain and simple: the numbers just don’t add up. Without intervention, the restaurants will be forced to close their doors, and by the time landlords wake up, it will be too late.”