Investment
Break clause
24/Jun/2011
Per NYK Logistics (UK) Ltd v Ibrend Estates BV [2011] the Court of Appeal has held that a tenant failed to give vacant possession pursuance to the terms of the break clause in its lease.
The tenant did not have to carry out repairs as a condition of the exercise of the break clause, but wanted to do them to control costs and quality and avoid a dilapidations claim for damages in excess of its own costs in doing the repairs. The tenant had not finished its repairs by the break date. Although the tenant had tried to contact the landlord to agree an extension of time to continue the repairs, the landlord had failed to respond. Workmen (employed by the tenant) remained in the property following the break date to finish off the outstanding repairs. The tenant also continued to employ a security guard for a further week following the break date because of concerns that the property would be vandalised.
The Court of Appeal held that the tenant should have moved everyone out of the property by midnight on the break date, including its security guard. The tenant should have contacted the landlord's agent on the break date to explain it was vacating and agreed to deliver the keys that same day. The tenant could then have contacted the landlord on the next working day and asked the landlord whether it would permit the tenant to return to the property, as its licensee, to complete the outstanding works. The tenant also failed on its subsidiary argument that the landlord had waived performance of the requirement to provide vacant possession.
The tenant did not have to carry out repairs as a condition of the exercise of the break clause, but wanted to do them to control costs and quality and avoid a dilapidations claim for damages in excess of its own costs in doing the repairs. The tenant had not finished its repairs by the break date. Although the tenant had tried to contact the landlord to agree an extension of time to continue the repairs, the landlord had failed to respond. Workmen (employed by the tenant) remained in the property following the break date to finish off the outstanding repairs. The tenant also continued to employ a security guard for a further week following the break date because of concerns that the property would be vandalised.
The Court of Appeal held that the tenant should have moved everyone out of the property by midnight on the break date, including its security guard. The tenant should have contacted the landlord's agent on the break date to explain it was vacating and agreed to deliver the keys that same day. The tenant could then have contacted the landlord on the next working day and asked the landlord whether it would permit the tenant to return to the property, as its licensee, to complete the outstanding works. The tenant also failed on its subsidiary argument that the landlord had waived performance of the requirement to provide vacant possession.
Buyers of property to let less deserving of protection
21/Jun/2011
Per Scullion v Bank of Scotland plc (t/a Colleys) [2011] the Court of Appeal has overturned the High Court decision that for buy-to-let residential property the valuer was liable to the purchaser.
The CA held that although the valuer had been negligent and the purchaser had relied upon the valuer’s report (amongst other advice) when deciding to proceed, the purchaser did not establish foreseeability of damage or a sufficient degree of proximity between himself and the valuer.
Nor did the purchaser show that it would be "fair, just and reasonable" to impose (on the valuer) a duty of care to the purchaser. The Court held there were important distinctions to be made between valuations for buy-to-let purposes and those made for home buyers.
The court commented that those buying properties to let, were less "deserving of protection by the common law against the risk of negligence than those buying to occupy as their residence."
The CA held that although the valuer had been negligent and the purchaser had relied upon the valuer’s report (amongst other advice) when deciding to proceed, the purchaser did not establish foreseeability of damage or a sufficient degree of proximity between himself and the valuer.
Nor did the purchaser show that it would be "fair, just and reasonable" to impose (on the valuer) a duty of care to the purchaser. The Court held there were important distinctions to be made between valuations for buy-to-let purposes and those made for home buyers.
The court commented that those buying properties to let, were less "deserving of protection by the common law against the risk of negligence than those buying to occupy as their residence."
Listed Buildings
01/Jun/2011
English Heritage has created a searchable database of all nationally designated heritage assets including Listed Buildings, Scheduled Monuments, Registered Parks and Gardens, Registered Battlefields and Protected Wreck Sites.
http://list.english-heritage.org.uk/
http://list.english-heritage.org.uk/
Cookies
26/May/2011
Commencing 26 May 2011, all UK businesses and organisations running websites in the UK are required by law to obtain people’s consent before they install cookies on their machines. (A cookie is a line of code that enables websites to monitor visitor usage, etc: it does not identify the actual user.)
None of the websites that I run and maintain install cookies, but the company whose services I use to monitor usage does install cookies. I am checking the legality of that as far my responsibility is concerned. Frankly I think cookies are an invasion of privacy although I accept they are necessary in some matters so if it transpires that I need to obtain your consent then I shall end the arrangement with the monitoring company.
None of the websites that I run and maintain install cookies, but the company whose services I use to monitor usage does install cookies. I am checking the legality of that as far my responsibility is concerned. Frankly I think cookies are an invasion of privacy although I accept they are necessary in some matters so if it transpires that I need to obtain your consent then I shall end the arrangement with the monitoring company.
Interest Rates
25/Feb/2011
Interest Rates
Base Rate remains at 0.5% since 26 October 2009
For MLR and Base Rate changes since 1989, please click here.
Base Rate remains at 0.5% since 26 October 2009
For MLR and Base Rate changes since 1989, please click here.
ex-Growth
13/Jan/2011
In the context of shop property for investment, the financial standing of a tenant can affect investment performance.
Although property costs (rent, business rates, etc) are often blamed, in practice, in my opinion, the majority of problems that befall retailers are self-inflicted through failure to address operational difficulties. Difficulties also arise where the trading location has improved, but the nature of the tenant’s business is out of kilter. Conversely, the trading position may have deteriorated, but the retailer’s mode of business, particularly on pricing, is not commensurate.
Where trading difficulties are caused by external events over which a retailer has no apparent control, such as severe weather conditions, the state of the economy, recession, and so on, such events are often cited as the cause of profit deterioration, but the fact that other retailers operating in the same sector of the market may be doing well, despite the same ostensibly adverse conditions, makes me think that ‘blaming’ such external events is used as an excuse for the retailer’s own shortcomings.
The challenge, in times of change, as indeed at all times, is to always remain in sync with what customers want to buy. There are many reasons for being out of sync, for example:
Although many retailers come unstuck in time of change, in practice it is not difficult to avoid that scenario. The main obstacle is that many retailers are resistant to change and will only do so when it is forced upon them, by which time it might be too late.
Although property costs (rent, business rates, etc) are often blamed, in practice, in my opinion, the majority of problems that befall retailers are self-inflicted through failure to address operational difficulties. Difficulties also arise where the trading location has improved, but the nature of the tenant’s business is out of kilter. Conversely, the trading position may have deteriorated, but the retailer’s mode of business, particularly on pricing, is not commensurate.
Where trading difficulties are caused by external events over which a retailer has no apparent control, such as severe weather conditions, the state of the economy, recession, and so on, such events are often cited as the cause of profit deterioration, but the fact that other retailers operating in the same sector of the market may be doing well, despite the same ostensibly adverse conditions, makes me think that ‘blaming’ such external events is used as an excuse for the retailer’s own shortcomings.
The challenge, in times of change, as indeed at all times, is to always remain in sync with what customers want to buy. There are many reasons for being out of sync, for example:
- The retailer is not providing as good a service as it thinks
- The retailer is offering what it wants customers to want: not what people need.
- Directors have lost interest - particular common if just short of retirement age, or having made a pile cannot really be bothered!
- Directors are disillusioned - a feeling that indicates lack of sync with reality.
- The business is failing to deliver what it promises.
- The retailer’s staff have the wrong attitude for the customers in the reality that the business serves.
- There is insufficient demand or too much competition to run a profitable business.
- Cash-flow is poor and other business management skills are lacking.
- The business is not professional and forward-thinking in its outlook.
- The directors are more interested in helping themselves than helping others.
- The directors are not doing what is essentially true for them.
Although many retailers come unstuck in time of change, in practice it is not difficult to avoid that scenario. The main obstacle is that many retailers are resistant to change and will only do so when it is forced upon them, by which time it might be too late.
Lease Plans
03/Oct/2010
The latest in my series of ML Guides is now available, a summary of the information required for Lease Plans.
Please note a lease plan is not required if the tenancy is shorter than 7 years. To reduce the expense of getting a compliant plan on grant of a new lease or on renewal, it may pay to have a shorter term than 7 years. However, specific advice must be taken, since there are wider consequences to consider.
Please note a lease plan is not required if the tenancy is shorter than 7 years. To reduce the expense of getting a compliant plan on grant of a new lease or on renewal, it may pay to have a shorter term than 7 years. However, specific advice must be taken, since there are wider consequences to consider.
Take-away food shops - planning restrictions
26/Oct/2009
Take-away food shops planning restrictions
LB Waltham Forest has introduced a policy, likely to be copied by other planning authorities, of not allowing take-away food shops to open within 400 metres of schools, parks and youth centres. Also, the North East London planning authority has begun consulting on a suite of development control policies which would restrict the number of fast-food outlets within primary, secondary and retail parade zones.
Until the 400-metre rule becomes nationally adopted planning policy, the point would only arise within LB Waltham Forest. In the meantime, to prepare for the possibility!
At rent review in the lease of premises whereby the permitted user is take-away foods - Use Class A5 is hot food takeaway, and possibly A3 - an assumption of the hypothetical tenant being able to get planning permission for such use is normal. If the premises are within 400 metres of a school, park and youth-centre, then in the open market the assumption would fail in practice. That could have the effect of either increasing the market rent, on the basis that if the premises did not already have take-away use then it would not be allowed, in which case there is a scarcity value, or reducing the market rent on the basis that in the market such planning use would not be allowed.
At lease expiry, if the tenant requires a lower rent or it will not renew, the landlord will have to weigh up the consequences of conceding a lower rent against the risk not being able to re-let the premises for take-away use if the planning permission for such use were to elapse.
There are thousands of take-away food shops. As literal interpretation of the lease has given way to presumption in favour of reality, checking the distance to the nearest school, park and youth-centre will be necessary when evaluating the rent.
LB Waltham Forest has introduced a policy, likely to be copied by other planning authorities, of not allowing take-away food shops to open within 400 metres of schools, parks and youth centres. Also, the North East London planning authority has begun consulting on a suite of development control policies which would restrict the number of fast-food outlets within primary, secondary and retail parade zones.
Until the 400-metre rule becomes nationally adopted planning policy, the point would only arise within LB Waltham Forest. In the meantime, to prepare for the possibility!
At rent review in the lease of premises whereby the permitted user is take-away foods - Use Class A5 is hot food takeaway, and possibly A3 - an assumption of the hypothetical tenant being able to get planning permission for such use is normal. If the premises are within 400 metres of a school, park and youth-centre, then in the open market the assumption would fail in practice. That could have the effect of either increasing the market rent, on the basis that if the premises did not already have take-away use then it would not be allowed, in which case there is a scarcity value, or reducing the market rent on the basis that in the market such planning use would not be allowed.
At lease expiry, if the tenant requires a lower rent or it will not renew, the landlord will have to weigh up the consequences of conceding a lower rent against the risk not being able to re-let the premises for take-away use if the planning permission for such use were to elapse.
There are thousands of take-away food shops. As literal interpretation of the lease has given way to presumption in favour of reality, checking the distance to the nearest school, park and youth-centre will be necessary when evaluating the rent.
Distressed sellers
01/Oct/2009
"Distressed" seller is the latest way for sellers to get rid of rubbish. The sort of properties that nobody else would buy. Start off by putting on the market over-priced. Expect to sell for much less. Attract interest, consider offers much lower than the quoting price. Do some due diligence as to whether the buyer has the money. Agree to accept what is thought by the buyer to be a bargain price. Exchange and complete contracts as soon as possible. Everyone is happy.
Good time to invest?
01/Sep/2009
It seems to me there are a growing number of people thinking to themselves now seems like a good time to invest in shop property. But I'm not convinced. Not because life's difficult for many retailers, and that for many struggling on in the hope of surviving is possibly about the best they can do, but that that the sort of property on the market for sale doesn't fill me with much enthusiasm for its investment potential.
Unlike the stock market, where you're buying a share of the company's business, with property you are not. You are simply buying the building in or which which the tenant runs its business. Whether the tenant intends to remain there is not something you are entitled to know and the tenant is not obliged to keep you informed. The only time the tenant has to tell you it is going is when it applies to assign the lease, sub-let the property, or does not renew the lease on expiry. And/or, in the case of a ltd company or plc, when it puts the occupant tenant in liquidation, administration or a CVA. Therefore, when you buy a shop property investment, you are placing a good deal of trust on the fact the tenant will continue to be the tenant for at least as long as the price you pay is commensurate with the value you have placed on the property per that price you have paid. For example, if the price you pay equates to 7% yield then to maintain that value, all other factors remaining constant, the tenant or a tenant of at least the calibre (if the lease were assigned and/or the property re-let) would have to remain the tenant for just over 14 years. If not, if any future tenant within that 14 year period is of a lesser calibre, then the value of the property would be less (all other factors remaining constant).
Buying a property let on 20 year lease is not the answer. Generally, retail property is a depreciating asset and the shorter the term the greater the yield. A property let to Barclays Bank plc, for example, on leaseback for 20 years from 2009 will likely fetch a higher price than if the term remaining is only a few years before expiry.
There is a difference between the return or yield you can get based on what you pay and whether the investment is worth buying in the first place. I think many people are not realising they are falling into the trap of the first. And it is a trap, believe me, because what it leads to is becoming stuck with something that is really only resalable at the same sort of price now.
Unlike the stock market, where you're buying a share of the company's business, with property you are not. You are simply buying the building in or which which the tenant runs its business. Whether the tenant intends to remain there is not something you are entitled to know and the tenant is not obliged to keep you informed. The only time the tenant has to tell you it is going is when it applies to assign the lease, sub-let the property, or does not renew the lease on expiry. And/or, in the case of a ltd company or plc, when it puts the occupant tenant in liquidation, administration or a CVA. Therefore, when you buy a shop property investment, you are placing a good deal of trust on the fact the tenant will continue to be the tenant for at least as long as the price you pay is commensurate with the value you have placed on the property per that price you have paid. For example, if the price you pay equates to 7% yield then to maintain that value, all other factors remaining constant, the tenant or a tenant of at least the calibre (if the lease were assigned and/or the property re-let) would have to remain the tenant for just over 14 years. If not, if any future tenant within that 14 year period is of a lesser calibre, then the value of the property would be less (all other factors remaining constant).
Buying a property let on 20 year lease is not the answer. Generally, retail property is a depreciating asset and the shorter the term the greater the yield. A property let to Barclays Bank plc, for example, on leaseback for 20 years from 2009 will likely fetch a higher price than if the term remaining is only a few years before expiry.
There is a difference between the return or yield you can get based on what you pay and whether the investment is worth buying in the first place. I think many people are not realising they are falling into the trap of the first. And it is a trap, believe me, because what it leads to is becoming stuck with something that is really only resalable at the same sort of price now.
Monthly Rents
01/Sep/2009
Monthly Rents
Although retailers in trouble are managing to persuade landlords to accept rents paid monthly, a growing number of retailers that are not in any difficulty are expecting the same treatment.
Some landlords can afford to be accommodating, but many cannot. Landlords that themselves are borrowing money are likely to be paying their interest quarterly, so accepting rents monthly from the tenant will mean the landlord subsidising the tenant.
In any event, such an arrangement, where it is a departure from the terms and conditions of the lease, should only be temporary, and subject to notice to end the arrangement if the landlord should so desire. Landlords should also put the agreement in writing, in a side-letter with the lease, setting out clearly the terms and conditions of the arrangement.
To avoid problems should the landlord want to sell the investment, the arrangement should be personal to the tenant and landlord and non-transferable.
In my opinion, the investment value of a property where the tenant is being allowed to pay monthly could well be lower than where payments are quarterly.
Although retailers in trouble are managing to persuade landlords to accept rents paid monthly, a growing number of retailers that are not in any difficulty are expecting the same treatment.
Some landlords can afford to be accommodating, but many cannot. Landlords that themselves are borrowing money are likely to be paying their interest quarterly, so accepting rents monthly from the tenant will mean the landlord subsidising the tenant.
In any event, such an arrangement, where it is a departure from the terms and conditions of the lease, should only be temporary, and subject to notice to end the arrangement if the landlord should so desire. Landlords should also put the agreement in writing, in a side-letter with the lease, setting out clearly the terms and conditions of the arrangement.
To avoid problems should the landlord want to sell the investment, the arrangement should be personal to the tenant and landlord and non-transferable.
In my opinion, the investment value of a property where the tenant is being allowed to pay monthly could well be lower than where payments are quarterly.
Pre-pack administration
01/Mar/2009
My letter published in Estates Gazette, March 2009:
"Whilst I agree with Anthony Ratclliffe there seems precious little difference between “phoenix” company and “pre-packs”, I do think landlords could do both themselves and the shop property sector a service by adopting a more robust approach to requests for assignment.
Generally, alienation criteria in a lease enable a landlord to require a director surety or guarantor as a pre-requisite for consent for assignment. Generally, multiple retailers are unwilling to provide personal guarantors but, since the pre-pack company is effectively a new business with no trading record, there is no reason to treat it any differently.
In my opinion, landlords are being presented with a rare possibly unique opportunity to influence the future of retailing and the structure of property costs in the UK. By refusing consent to assign to a pre-pack unless personal guarantor(s) are provided, multiple retailers are less likely to embark upon debt-fuelled jamborees, if their own personal money were on the line. One reason there is now a legacy of high rents in most places is not a consequence of supply and demand, so much as the knock-on effect of rental evidence caused overambitious egocentric retailers living off borrowings and overpaying for new lettings with no thought for the long-term wider consequences.
Increasingly, I am taking the view that comparable evidence at rent review involving a transaction where the lease is to a company without a personal guarantor should be treated with the utmost caution, because the rent is likely to be higher.
In my opinion, multiple retailers allowing branches to under-perform, such that they have to be ditched using pre-packaged practices, is tantamount to gross incompetence at the highest level. It is also a poor reflection on the investment acumen of innumerable landlords in allowing multiple retailers to be exempt or shielded from the strictures of tenancy management that are automatically applied to small businesses."
"Whilst I agree with Anthony Ratclliffe there seems precious little difference between “phoenix” company and “pre-packs”, I do think landlords could do both themselves and the shop property sector a service by adopting a more robust approach to requests for assignment.
Generally, alienation criteria in a lease enable a landlord to require a director surety or guarantor as a pre-requisite for consent for assignment. Generally, multiple retailers are unwilling to provide personal guarantors but, since the pre-pack company is effectively a new business with no trading record, there is no reason to treat it any differently.
In my opinion, landlords are being presented with a rare possibly unique opportunity to influence the future of retailing and the structure of property costs in the UK. By refusing consent to assign to a pre-pack unless personal guarantor(s) are provided, multiple retailers are less likely to embark upon debt-fuelled jamborees, if their own personal money were on the line. One reason there is now a legacy of high rents in most places is not a consequence of supply and demand, so much as the knock-on effect of rental evidence caused overambitious egocentric retailers living off borrowings and overpaying for new lettings with no thought for the long-term wider consequences.
Increasingly, I am taking the view that comparable evidence at rent review involving a transaction where the lease is to a company without a personal guarantor should be treated with the utmost caution, because the rent is likely to be higher.
In my opinion, multiple retailers allowing branches to under-perform, such that they have to be ditched using pre-packaged practices, is tantamount to gross incompetence at the highest level. It is also a poor reflection on the investment acumen of innumerable landlords in allowing multiple retailers to be exempt or shielded from the strictures of tenancy management that are automatically applied to small businesses."
London SE18 - 71-77 Powis Street -
13/Oct/1998
My Client, the superior Landlord, owns the freehold of the front section of the property, a ground lease for a term of 999 years of the back section and 99-year lease of the middle section. The middle section is built on a raft over the railway tracks and the rent for that section is a percentage of the entire property. My Client leases the whole property to Powis Street Estates which in turns sub-lets to New Look.
The 99-year lease has rent reviews every 21 years and the lease between my Client and Powis Street Estates also contains rent reviews at 21 year intervals.
For the 1995 rent review, when the store was let to Littlewoods, the review was referred to arbitration, the arbitrator was a senior partner of Jones Lang LaSalle. Littlewoods was represented by a partner of Healey & Baker (now Cushman & Wakefield). In our respective submissions, we considered the rents of stores throughout Greater London. The Award was at almost the same rent as I had originally proposed.
For the 99-year lease review, where my landlord-Client is the tenant, other issues were involved reflecting differences in the leases. To minimise the proposed increase in rent, I research the development history of the building including obtaining copy documents from the solicitors that had acted for the original landlord in 1974. During the negotiations, legal proceedings were initiated against the superior landlord’s surveyor for breach of warranty of authority.
Concern for short-term gain is worrying
01/Jun/1985
The current trend for private investors in the retail market to be more concerned with short term gain than long term income is worrying.
Participants seem to have overlooked the fact that the essence in capital gain to date owes more to previous levels of inflation than to design~ And even if high inflation does return, the retailing revolution will stultify any likelihood of a repeat boom.
Many new investors believe that rental value reflects expected investment yield, based upon the price they have paid. ln fact, investment value is calculated by reference to the level of rent and not vice versa. However, high prices paid for some investments can only reflect a very optimistic view of rental value. With the exception of property formerly owned by notedly cautious landlords, the idea that the previous owner must have agreed too low a rent, especially if set during the period 1981-1983, is too simplistic. By having always to aim for the top rental on review, to cover purchasing expectations, any failure to achieve the objective rubs off on the relationship with the valuer whose advice is dismissed as 'negative.'
The tenant becomes saddled with a difficult landlord and often with a rental commitment far above the economics of his business. In the open market, cyclical change is inevitable, but in the quest for short term gain, while the loss of one particular tenant may not matter, it is the collective effect of the pressure for high rents which radically affects long term stability, since there cannot be capital gain without security of income.
In the past, investment values have had a useful way of adjusting to their owners' low inflation mistakes, but with changes in the pattern of retailing, and high interest rates, the margin for error now is very The investor who overpays, through ignorance or greed, only to find that the resultant yield, following review, is well below comfortable resale price will have to fund the shortfall somehow. While it is churlish to insist upon strict consideration of investment criteria, since the pressure to use substantial borrowing facilities dominates the market, the problem is unlikely to grow.
Participants seem to have overlooked the fact that the essence in capital gain to date owes more to previous levels of inflation than to design~ And even if high inflation does return, the retailing revolution will stultify any likelihood of a repeat boom.
Many new investors believe that rental value reflects expected investment yield, based upon the price they have paid. ln fact, investment value is calculated by reference to the level of rent and not vice versa. However, high prices paid for some investments can only reflect a very optimistic view of rental value. With the exception of property formerly owned by notedly cautious landlords, the idea that the previous owner must have agreed too low a rent, especially if set during the period 1981-1983, is too simplistic. By having always to aim for the top rental on review, to cover purchasing expectations, any failure to achieve the objective rubs off on the relationship with the valuer whose advice is dismissed as 'negative.'
The tenant becomes saddled with a difficult landlord and often with a rental commitment far above the economics of his business. In the open market, cyclical change is inevitable, but in the quest for short term gain, while the loss of one particular tenant may not matter, it is the collective effect of the pressure for high rents which radically affects long term stability, since there cannot be capital gain without security of income.
In the past, investment values have had a useful way of adjusting to their owners' low inflation mistakes, but with changes in the pattern of retailing, and high interest rates, the margin for error now is very The investor who overpays, through ignorance or greed, only to find that the resultant yield, following review, is well below comfortable resale price will have to fund the shortfall somehow. While it is churlish to insist upon strict consideration of investment criteria, since the pressure to use substantial borrowing facilities dominates the market, the problem is unlikely to grow.
Future for Secondary shops
01/Dec/1984
The historic development of shopping centres makes fascinating reading. Originally, as people went to market, so came permanent shops. In the post-war housing boom, shops started going to the people and even today, new council housing estates boast a block of shops.
The radical change in socio-economic patterns, and the real decline in the cost of transport, means that today, people go to the shops and the goodwill generated by the major operators in all sectors of the retailing market is sufficiently established to influence the prosperity of shopping centres.
When the idea of Brent Cross Shopping Centre was conceived in 1959, it would probably not have been anything like as successful a concept that it is today. In the early 1960' s, shopping development was confined to traditional shopping centres, and precincts, such as the Arndale Centres, were built on land fronting the High Streets. The first suggestion that people might be persuaded to shop away from the traditional pitches was introduced when the second-generation food supermarkets, such as Tesco and Sainsbury started to move to fringe positions so as to provide on-site parking and loading facilities for their customers.
The need for food is the common link between all people. As it is a perishable product, with people having limited facilities for bulk storage, shopping for food is the main reason why most shopping centres attract daily pedestrian flow. If you take away the food shops, technically known as convenience traders, you also remove the spin-off for durable and service traders.
It is clear that the future of food retailing lies in the free-standing purpose-built supermarket located in an accessible position and offering excellent parking and loading facilities. The strength of buying power for and competition between the major operators means that retail prices are particularly keen. The independent grocer has seen his market share decline gradually since the 1950's and butchers, greengrocers, off-licences, fishmongers have all been hit hard. The ubiquitous confectioner, tobacconist, newsagent only survives because the major wholesalers of newspapers operate retail CTN outlets themselves. The private retailer with expansion ambition knows that the future for retailing must be to take units in busy positions, which are not completely dependent upon the whims and loyalties of local custom.
The importance that the presence of a food supermarket has on shopping positions is still underestimated. The closure by the Co-Op of many neighbourhood supermarkets has had a devastating effect on many local centres. Like cigarette brands, people are loyal to their favourite supermarket group and even if the old 'Tesco' is replaced by an individual grocer, offering the cliches of personal service and flexible opening hours, the damage is done. Local grocers won't survive for ever on people buying a pound of butter at 10 pm. The key to establishing some hold on the market is to contain costs, as there is always scope to participate in automatic local potential, especially as not everyone wants to shop at a superstore. In fact, the major groups are generally pleased that corner and local shops continue because they operate in different markets and, of course, it would be political suicide to admit to their extinction. However, the products are still the same and most shoppers are price conscious.
The top supermarket operators invest in research. They plan well-ahead and commitment to a development programme involving millions of pounds allows for the short term hurdles in favour of long term success. In the same way that the institutional and major landlords are actively selling secondary shops, so the major and multiple groups are actively vacating obsolete trading positions. Apart from the food groups, the other' enemies within' (so far as the secondary market is concerned) are the DIY, furniture and electrical groups, such as MFI, Harris Queensway, Payless, Texas Homecare, Do-It-All, Comet, B & Q, Homebase, etc, etc. Clamour for revision of the Sunday trading laws adds fuel to a fire which has already devastated the small retailer and is now creeping into the entire secondary centre.
This year's CBI-FT figures for Christmas trading predictions mention the local shop's expectations, for the first time. Any trip around secondary shopping centres this year would have indicated the noticeable absence of extra pedestrian flow. In my opinion, 1984's Christmas trading period will mark the beginning of the secondary trader's dread of this traditional time. In the past, all shopkeepers used to look forward to the seasonal upturn, but the rot started last year when shoppers spent a fortune in the High Streets and superstores and this year will prove no exception.
Supporters of the relaxation in Sunday trading laws claim more consumer choice and new jobs. But it is blatantly obvious that the small retailer will be squeezed out by the major operators. Important shopping areas, like Oxford Street, will benefit but the axe will fall on the rest. The new growth area for unemployed will be the self-employed retailer whose business is totally dependent upon pedestrian flow generated by the goodwill of others. Few local retailers actively market their stock; they are inter-dependent upon the collective benefit generated by being in a successful shopping centre and without the presence of national companies, generating national advertising and goodwill, there will be little incentive for local people to shop, except for the occasional item.
The future for the secondary shop will rest upon the retailer's personal ability as a retailer, highlighting the fact that few shop-keepers are retailers. The double glazing showrooms are a good example of a modern approach to retailing. They are shops for the visible storage of goods sold by the operator, through advertising and direct marketing. Too many shopkeepers have become complacent; they are used to people walking in automatically instead of actively attracting their interest.
If secondary centres do become the equivalent to an overcoat for shoppers - only needed when absolutely necessary - then the future expectations for investment growth must be limited. In establishing the future importance of a secondary centre, close attention should be paid to the size of the premises occupied by the supermarket operator to ensure it meets modern requirements and also upon the identity of the operator, as this defines the nature of the catchment area. It is important to monitor the locations in which the major operators take sites for their new stores. Most pop up in local and secondary areas because that is where land is most available. The benefit to the surrounding centres, however, will be dependent upon each individual retailer's ability to capitalise on the presence of the extra pedestrian flow by gearing his corporate image to the needs of the people.
Landlords have a role to play in maintaining the balance of trade in a secondary centre. On receipt of applications to change the user, the landlord should refuse consent if the proposed user appears to be in direct competition with established traders. It comes as a shock to many individual shopkeepers to be told that the rent for the premises is not calculated by reference to their ability to pay it. The level of rents in many secondary centres has already reached a peak at which, combined with the effect of rates, ever increasing overheads and declining revenue, they are now seriously affecting the stability of the centre.
Careful choice for investment is fast becoming essential. There will always be opportunities for growth, but a blanket assumption that all secondary areas will continue to prosper is a fallacy. I predict that investors who expect the percentage increases in rents applicable in the five year period from 1979 to 1984 to be repeated for the latter part of this decade are likely to be very disappointed despite the research!
The radical change in socio-economic patterns, and the real decline in the cost of transport, means that today, people go to the shops and the goodwill generated by the major operators in all sectors of the retailing market is sufficiently established to influence the prosperity of shopping centres.
When the idea of Brent Cross Shopping Centre was conceived in 1959, it would probably not have been anything like as successful a concept that it is today. In the early 1960' s, shopping development was confined to traditional shopping centres, and precincts, such as the Arndale Centres, were built on land fronting the High Streets. The first suggestion that people might be persuaded to shop away from the traditional pitches was introduced when the second-generation food supermarkets, such as Tesco and Sainsbury started to move to fringe positions so as to provide on-site parking and loading facilities for their customers.
The need for food is the common link between all people. As it is a perishable product, with people having limited facilities for bulk storage, shopping for food is the main reason why most shopping centres attract daily pedestrian flow. If you take away the food shops, technically known as convenience traders, you also remove the spin-off for durable and service traders.
It is clear that the future of food retailing lies in the free-standing purpose-built supermarket located in an accessible position and offering excellent parking and loading facilities. The strength of buying power for and competition between the major operators means that retail prices are particularly keen. The independent grocer has seen his market share decline gradually since the 1950's and butchers, greengrocers, off-licences, fishmongers have all been hit hard. The ubiquitous confectioner, tobacconist, newsagent only survives because the major wholesalers of newspapers operate retail CTN outlets themselves. The private retailer with expansion ambition knows that the future for retailing must be to take units in busy positions, which are not completely dependent upon the whims and loyalties of local custom.
The importance that the presence of a food supermarket has on shopping positions is still underestimated. The closure by the Co-Op of many neighbourhood supermarkets has had a devastating effect on many local centres. Like cigarette brands, people are loyal to their favourite supermarket group and even if the old 'Tesco' is replaced by an individual grocer, offering the cliches of personal service and flexible opening hours, the damage is done. Local grocers won't survive for ever on people buying a pound of butter at 10 pm. The key to establishing some hold on the market is to contain costs, as there is always scope to participate in automatic local potential, especially as not everyone wants to shop at a superstore. In fact, the major groups are generally pleased that corner and local shops continue because they operate in different markets and, of course, it would be political suicide to admit to their extinction. However, the products are still the same and most shoppers are price conscious.
The top supermarket operators invest in research. They plan well-ahead and commitment to a development programme involving millions of pounds allows for the short term hurdles in favour of long term success. In the same way that the institutional and major landlords are actively selling secondary shops, so the major and multiple groups are actively vacating obsolete trading positions. Apart from the food groups, the other' enemies within' (so far as the secondary market is concerned) are the DIY, furniture and electrical groups, such as MFI, Harris Queensway, Payless, Texas Homecare, Do-It-All, Comet, B & Q, Homebase, etc, etc. Clamour for revision of the Sunday trading laws adds fuel to a fire which has already devastated the small retailer and is now creeping into the entire secondary centre.
This year's CBI-FT figures for Christmas trading predictions mention the local shop's expectations, for the first time. Any trip around secondary shopping centres this year would have indicated the noticeable absence of extra pedestrian flow. In my opinion, 1984's Christmas trading period will mark the beginning of the secondary trader's dread of this traditional time. In the past, all shopkeepers used to look forward to the seasonal upturn, but the rot started last year when shoppers spent a fortune in the High Streets and superstores and this year will prove no exception.
Supporters of the relaxation in Sunday trading laws claim more consumer choice and new jobs. But it is blatantly obvious that the small retailer will be squeezed out by the major operators. Important shopping areas, like Oxford Street, will benefit but the axe will fall on the rest. The new growth area for unemployed will be the self-employed retailer whose business is totally dependent upon pedestrian flow generated by the goodwill of others. Few local retailers actively market their stock; they are inter-dependent upon the collective benefit generated by being in a successful shopping centre and without the presence of national companies, generating national advertising and goodwill, there will be little incentive for local people to shop, except for the occasional item.
The future for the secondary shop will rest upon the retailer's personal ability as a retailer, highlighting the fact that few shop-keepers are retailers. The double glazing showrooms are a good example of a modern approach to retailing. They are shops for the visible storage of goods sold by the operator, through advertising and direct marketing. Too many shopkeepers have become complacent; they are used to people walking in automatically instead of actively attracting their interest.
If secondary centres do become the equivalent to an overcoat for shoppers - only needed when absolutely necessary - then the future expectations for investment growth must be limited. In establishing the future importance of a secondary centre, close attention should be paid to the size of the premises occupied by the supermarket operator to ensure it meets modern requirements and also upon the identity of the operator, as this defines the nature of the catchment area. It is important to monitor the locations in which the major operators take sites for their new stores. Most pop up in local and secondary areas because that is where land is most available. The benefit to the surrounding centres, however, will be dependent upon each individual retailer's ability to capitalise on the presence of the extra pedestrian flow by gearing his corporate image to the needs of the people.
Landlords have a role to play in maintaining the balance of trade in a secondary centre. On receipt of applications to change the user, the landlord should refuse consent if the proposed user appears to be in direct competition with established traders. It comes as a shock to many individual shopkeepers to be told that the rent for the premises is not calculated by reference to their ability to pay it. The level of rents in many secondary centres has already reached a peak at which, combined with the effect of rates, ever increasing overheads and declining revenue, they are now seriously affecting the stability of the centre.
Careful choice for investment is fast becoming essential. There will always be opportunities for growth, but a blanket assumption that all secondary areas will continue to prosper is a fallacy. I predict that investors who expect the percentage increases in rents applicable in the five year period from 1979 to 1984 to be repeated for the latter part of this decade are likely to be very disappointed despite the research!