The traditional commercial leasing structure must be revised if businesses are to survive, says Rent Reform managing director David Abramson
The news from the high street is indeed grim. Chains such as Blacks and La Senza have folded and even Tesco reported a disappointing Christmas.
In the catering sector the outlook is equally bleak. When disposable income is squeezed, the hospitality industry is one of the first to suffer as hard up families stay at home to save money. It's easy to see why so many retail businesses feel there is no escape from the icy finger of recessionary doom.
In this economic climate there is one often overlooked factor which, if reviewed and updated, would mean the difference between bankruptcy or survival for many struggling restaurants and hotels.
As it stands, the traditional commercial leasing structure is no longer fit for purpose and needs a serious overhaul. Most businesses are locked into 15 or 20-year leases which are reviewed in five-year cycles. At those reviews rents only go up or at best stay the same.
The system may have worked five years ago but today it is ridiculously out of touch with the economic climate and is bringing businesses to their knees. It is even a false economy to think that this process benefits landlords, because if they do not lower rents they are faced with empty properties as more and more businesses go bust.
Because rents no longer mirror economic conditions, properties in many areas are now over-rented by up to 50%. It is fair to say that 95% of leases are over-priced. There needs to be a national review of the rental structure to rectify this system before it is too late.
Landlords are out of touch with the financial climate and if they fail to grasp the simple fact that there is no longer as much money in the kitty for rents as there used to be we will see increasing numbers of high streets die.
Businesses can do their part too. Many fail to realise that they can renegotiate their rents more favourably, even if it is just for the short term. In some cases, retailers can secure up to 60% reductions in rent. Even if this is for just a year or two it gives businesses the breathing space to continue trading.
People are waking up to the possibility of lower rents. It will be the only way for some to survive. Lease restructuring will be at the forefront of the property industry for the foreseeable future and is vital if businesses are going to weather the storm.