While a new year symbolises a fresh start for many, you could be forgiven for thinking you had been planted in the film Groundhog Day but instead the calendar was stuck in 2020.
Perhaps nowhere is this more the case than in the retail and hospitality industry, with Lord Sugar’s legal challenge to the planned CVA by Caffe Nero another reminder of the recurring disputes between commercial landlords and tenants.
British high streets have been experiencing dramatic changes for some time, many of which were a long time in coming.
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But the government’s forced but totally understandable closure of non-essential retail and restaurants for large chunks of 2020, and again in 2021, has only added new challenges.
Now, for every week that shops are shut, the retail sector loses £2 billion. Meanwhile, there are about 250,000 staff on furlough and the Centre for Retail Research believes 200,000 jobs will be lost in 2021.
This is undoubtedly a painful situation for retailers, but it does not paint a full picture of what is going on behind the shop window.
At the other end of the spectrum, we have landlords. The pandemic sparked a wave of Company Voluntary Agreements (CVAs) in the retail, leisure, and hospitality sectors.
Data from the British Property Federation (BPF) shows 13 CVA’s were launched in Q3 2020 alone – the same number as the whole of 2019. Shortly after Caffe Nero’s planned CVA was legally challenged by a landlord-led consortium which included Lord Sugar, the BPF wrote a letter to corporate responsibility minister Lord Callanan about the misuse of the CVA process, citing how it has been “cynically used as an excuse by wealthy individuals and private equity backers to shift onto property owners the cost of years of failings and underinvestment.”
The health of the UK’s high streets and retail sector has increasingly become a battleground of ‘them and us’ arguments between landlords and tenants, but the reality is that it is a tough situation whichever side of the fence you are on and there are even more difficult decisions ahead.
We should know; not only are we experienced landlords at Cain International, but, having acquired Prezzo at the close of 2020, we are tenants too.
So, what can we do? After years of mounting pressure between the two sides and an especially problematic period from March 2020, how do we exit this cycle and finish this year in a better place than where we started it?
The pandemic has presented every party with a serious challenge, and for many it’s a sink or swim scenario.
Landlords have a right to expect tenants to adhere to the terms of a lease that they freely entered, but if that model means rent collection one quarter and an empty unit the next, then perhaps it is time to change to a model that works better for all parties, allowing landlords to collect rent, retailers to trade and valuers to provide accurate valuations.
Where things stand now, in a great number of circumstances, a turnover model would allow much greater transparency on a tenant’s performance for landlords.
This would allow a clear roadmap for economic recovery, a stable basis for future relationships between the two sides and will help move the, often unfair, narrative on from landlords being the ‘bad guys’.
Equally, retailers and restaurants need to evolve their physical offering. For many retailers, the pre-covid model wasn’t working and if we are going to put our faith in these businesses to revive our high streets then they need to demonstrate their commitment to innovation.
We will all need to make sacrifices, and some routes to mend the damage may challenge traditional models.
But if businesses with a potential solution aren’t heard, nor given the opportunity to execute proposed strategies then we may soon find ourselves in open water without a life vest.
Ultimately, the only way to emerge from this crisis is if all sides commit to doing whatever it takes to avoid evictions, voids, broken high streets and, critically, mass unemployment.
If we lose the underpinning of this ecosystem behind retail, hospitality, and offices the impact will be deeply profound on our national economic health. This is the worst-case scenario for absolutely everyone.
Most importantly, we need the Government to be clear on where it stands regarding the rental moratorium, VAT, and rates, as well as consider how it can do more to help. Everyone is going to have to take some of the pain. However, if we can lay down our arms and work together to implement a more equitable and fit-for-purpose solution that stimulates long-term economic growth, then we may finally be able to escape this loop and plan for a better tomorrow.