Primark requests reduction in rents as UK commercial property sector struggles
Retail giant Primark has requested their rents be reduced by a third as pressure from online retailers continues to take a huge toll on bricks and mortar businesses
Retail giant Primark have followed a number of struggling businesses like House of Fraser, Monsoon and Topshop, by requesting their rents be reduced by a third.
The high street has long been in a state of decline as the pressure from online retailers has taken a huge toll on bricks and mortar traders. In order to stem the flow of losses and continue trading in the high street, many struggling businesses have looked to secure Company Voluntary Arrangements (CVA) with local authorities and landlords.
Company Voluntary Arrangements have been traditionally used by businesses struggling to compete with the online market whilst they still had huge overheads, like crippling rents, to pay. Citing reduced footfall as a factor, many businesses have negotiated rent reductions in order to retain their presence on the high street.
However, despite their success, Primark have released a statement insisting that they will seek rent reductions for a number of their current 189 stores.
In a statement made in a newspaper, Primark stated they would pursue rent reductions if their infrastructure and maintenance improvements increase the value of the property for the landlord.
Additionally the report also stated that their rental expenditure must reflect ‘the prevailing market rental rate’ which they perceive to be ‘lower than past rates.’
The RICS Q2 UK Commercial Market Survey for 2019 reflected this negative sentiment as tenant demand remained in negative territory because fewer retailers are looking to occupy physical space.
For the fifth consecutive quarter, the tenant demand indicator found a negative net balance of -59% which has pushed the all-sector average below zero.
The sentiment for retail units and the commercial property sector remains downbeat. 53% of all respondents nationally feel the market is in some stage of downturn, this rises to 63% of those in London.
A Primark spokesperson said that they don’t comment on the detail of commercial negotiations, but in principle they may on occasion look to secure rent reductions in circumstances where they are offering to extend leases on stores or when investing in the property, thereby increasing the underlying value of the property.
The spokesperson said that similarly, as leases come to an end, they seek new agreements that reflect the prevailing market rental rate for the property and its circumstances. In the current market, those rates are often lower than past rates. Like any responsible retailer, they have a duty towards shareholders to maintain a competitive cost base, and seek to maintain good relationships with their landlords.