Commercial property blog

By James Whitmore

Shoppers visit 'struggling' retailers in Oxford Street

Retail rents fell in July – the first month since 2001 that they have done so, according to the latest CB Richard Ellis Monthly Index.

Is it now time, then, for landlords to ask their retail tenants to pay their rent six months in advance to help with cash flow?

The norm is three months in advance, but retailers want to change existing contracts to monthly to help with their own cash flow problems in a battle initiated by Sir Philip Green and Carpetright founder Lord Harris.

I’m afraid I have absolutely no sympathy for the retailers. They accuse landlords of being inflexible, unrealistic and out of touch. Some, indeed may be, but the major retail property owners are not. They offer a menu of options with new leases and all say that retailers have been most keen to get large rent-free periods and contributions to store fit-out costs and that the rent payment schedule was way down the list.

If retailers want to pay rents monthly on existing leases, they should have negotiated that when they signed the lease.

Last week B&Q property director Terry Hartwell told Retail Week: ‘We are asking landlords to wake up. The market is worse than we’ve seen for 15 to 20 years, therefore now is the time to compromise a bit and try to help retailers with their cash flow.’

It is Hartwell and other retailers that need to wake up. The property market is also in its worse state for 15 years and many landlords are struggling to keep the wolf from the door. The values of their properties have fallen by more than 20% over the last year, which means many will be in negative equity territory.

Property owners and retailers are both suffering. The difference is that property owners are not whinging about it.

By James Whitmore

For Sale Signs

Take two stories that were published today in the Financial Times and the Telegraph. ‘House prices are expected to fall by almost 30% during the next three years,’ says the FT. ‘Falling output from housebuilders could lead to a 30% increase in house prices between 2009 and 2012,’ says the Telegraph.

The 60% differential is plainly ridiculous. The FT’s source is the prices of residential property derivatives, while the Telegraph’s is the Centre for Economic and Business Research.

If I had to choose between the two extremes, I would plump for the 30% increase. While mortgages are difficult to come by, prices will continue to slide. But, once the mortgage market returns to normal, then prices will once again rise quickly. After all, mortgage interest rates are still historically low – my own is 5.14% (0.14% above base rates) secured only last December with my existing lender, and there is still a nationwide shortage of family houses.

Before the credit crunch began a year ago, the newspapers, if you remember, were full of stories saying there was a huge shortage of houses in the UK and Gordon Brown was making an increase in the development of houses his priority. That situation is now even worse, because far fewer houses are being built this year.

The medium and long-term trend for house prices is up. We are enduring one of those nasty short-term blips. When it will finish, I have no idea, but surely by 2012 prices will once again be soaring.