Jump to content
House Price Crash Forum

High street facing a “watershed moment”


Recommended Posts

https://www.thetimes.co.uk/article/new-look-wins-radical-rent-reform-wpn7dhrk6

Paywalled article in The times about New Look’s deal with creditors (mainly its Landlords) to save 11k jobs.

To quote the article:

“The CVA includes landlords accepting no rent on 68 shops and as little as 2 per cent of turnover on 402 shops.”
 

It’s a massive hit for their LLs and sets a precedent.

Article reckons this will open the floodgates and presumably have a big effect on commercial property values.

 

Link to post
Share on other sites

The high street is likely to be reduced forever, and big shopping centres essentially dead - it would have been The case anyway...COVID has just sped up the process.

Many Physical shops have been simply superseded by the internet. 

Link to post
Share on other sites

Here’s a non-paywalled article. 
https://www.google.co.uk/amp/s/www.thisismoney.co.uk/money/markets/article-8735773/amp/New-Looks-landlords-agree-switch-turnover-linked-rent-contracts.html

Turnover linked contracts are interesting. It means that the landlord will take a hit if any future lockdowns hit trade, but how does it work if the retailer decides to move online and close stores? It also presumably means that the landlord can scrutinise the company accounts to make sure no funny business is going on.

The 68 stores that are not receiving any rent is odd too. Is that forever? And what’s the value a retail property with a rental value of nil? Surely it’s nil.

 

Link to post
Share on other sites
11 minutes ago, Bear Goggles said:

Here’s a non-paywalled article. 
https://www.google.co.uk/amp/s/www.thisismoney.co.uk/money/markets/article-8735773/amp/New-Looks-landlords-agree-switch-turnover-linked-rent-contracts.html

Turnover linked contracts are interesting. It means that the landlord will take a hit if any future lockdowns hit trade, but how does it work if the retailer decides to move online and close stores? It also presumably means that the landlord can scrutinise the company accounts to make sure no funny business is going on.

The 68 stores that are not receiving any rent is odd too. Is that forever? And what’s the value a retail property with a rental value of nil? Surely it’s nil.

 

Prices linked to income, it'll never catch on..... :lol:

Link to post
Share on other sites

This is good IMO.  It breaks the perception of ever increasing rents - something, as I've said before, the market desperately needs.  Rents are now being tied to the sucess of the business - turnover is a poor metric, but better than nothing.

If commercial LL (and their funds) start having to be realistic about returns, it makes them more cautious and adjust prices accordingly.

Link to post
Share on other sites

If 2% of turnover becomes normal rent... and companies expect 2% yield on commercial property... then the value of any given high street shop is 1 years turnover of said shop.

If a 4% yield is expected then the value is 6 months turnover...

I wonder how this compares to current valuations.

Link to post
Share on other sites
6 hours ago, scottbeard said:

Only a tiny fraction of most pension funds are invested in property. 

weren't there quite a few councils who thought this was a get rich quick scheme to cover their ever spiralling costs?

Link to post
Share on other sites

I see taxy,taxy coming to online purchases...for the benefit of the high street of course.

commercial property LL's will be selling up and councils will be screaming blue murder about having to foot the bill for their malinvestments.....not like they would ever try to take a really good long hard look at HOW they spend OUR money.cutting their own costs is the last thing on their mind because telling people what to do is a power trip,and it grows like cancer.

Link to post
Share on other sites
5 hours ago, oracle said:

weren't there quite a few councils who thought this was a get rich quick scheme to cover their ever spiralling costs?

I believe there are councils who have invested in commercial property - although I have no data on this, and no data on whether specifically they have invested PENSION money in it or other funds.

What irritates me (as someone who works in pensions) is when posters such as those above throw out the idea that suddenly this means there is a "pension crisis".  It doesn't.  Commercial property is only one asset class, and not a particularly significant one for most pension funds - that's my point.  Clearly if some random councils have decided to go all in on it then that's a problem for them - but that doesn't constitute a wider pensions crisis.

Link to post
Share on other sites
5 hours ago, scottbeard said:

I believe there are councils who have invested in commercial property - although I have no data on this, and no data on whether specifically they have invested PENSION money in it or other funds.

What irritates me (as someone who works in pensions) is when posters such as those above throw out the idea that suddenly this means there is a "pension crisis".  It doesn't.  Commercial property is only one asset class, and not a particularly significant one for most pension funds - that's my point.  Clearly if some random councils have decided to go all in on it then that's a problem for them - but that doesn't constitute a wider pensions crisis.

Well said - ironic on a site which abhors property as investment people with limited knowledge knock pensions 

That’s the mainstream thinking that meant millions of people bought BTL’s as a pension rather than invest with all the tax advantages in a pension 

Link to post
Share on other sites
18 hours ago, msi said:

This is good IMO.  It breaks the perception of ever increasing rents - something, as I've said before, the market desperately needs.  Rents are now being tied to the sucess of the business - turnover is a poor metric, but better than nothing.

If commercial LL (and their funds) start having to be realistic about returns, it makes them more cautious and adjust prices accordingly.

Very poor.......turnover would be huge if selling say Rolls Royces....or some other high price product or service.......turnover has little to do with profit.;)

Link to post
Share on other sites
7 minutes ago, winkie said:

Very poor.......turnover would be huge if selling say Rolls Royces....or some other high price product or service.......turnover has little to do with profit.;)

Agreed it's poor, but it breaks the sacred cow notion of 'rents are non-negotiable and only move upwards'.  Commercial LL having to adjust what they can extract and risk adjust this is a watershed and should be welcomed IMO. It gives more power to stable businesses and puts a hard break on leveraged letting.

If you want a really wacky idea, apply this to Residential lettings - suddenly regular payers have power to pay more, but also demand less in return for longer tenancies or as a result of their past payment.

Link to post
Share on other sites
8 hours ago, winkie said:

Very poor.......turnover would be huge if selling say Rolls Royces....or some other high price product or service.......turnover has little to do with profit.;)

But profit is very easy to manipulate, especially for large companies with off shore arrangements, just ask HMRC. 

Presumably, the average turnover of the average shop was part of the negotiation process that arrived at 2%. 

Link to post
Share on other sites
On 16/09/2020 at 17:25, Extreme_biker0 said:

If 2% of turnover becomes normal rent... and companies expect 2% yield on commercial property... then the value of any given high street shop is 1 years turnover of said shop.

If a 4% yield is expected then the value is 6 months turnover...

I wonder how this compares to current valuations.

It’s also be interesting to know how much turnover varies from shop to shop on the high street. Do Costa, Mc Donald’s, Primark and Hugo Boss all have a similar turnovers per sq ft? Or are they completely different?

Link to post
Share on other sites
14 hours ago, Bear Goggles said:

It’s also be interesting to know how much turnover varies from shop to shop on the high street. Do Costa, Mc Donald’s, Primark and Hugo Boss all have a similar turnovers per sq ft? Or are they completely different?

Its actually very difficult for a number of reasons. 

Take a shopping strip. 

Shop A is a tesco metro. Huge turnover, margin of about 1.8%

Shop B is a art gallery, Tiny turnover, gross margin on art around 40%.

 

You can't expect tesco to pay the same % turnover as a boutique store. Totally different business. 

Additionally who audits and checks the figures?

Listed companies are often to happy with opening their books to others aside from auditors.

Small businesses won't have an auditor. Do they need to get one? Who pays? 

Link to post
Share on other sites
1 hour ago, captainb said:

Its actually very difficult for a number of reasons. 

Take a shopping strip. 

Shop A is a tesco metro. Huge turnover, margin of about 1.8%

Shop B is a art gallery, Tiny turnover, gross margin on art around 40%.

 

You can't expect tesco to pay the same % turnover as a boutique store. Totally different business. 

Additionally who audits and checks the figures?

Listed companies are often to happy with opening their books to others aside from auditors.

Small businesses won't have an auditor. Do they need to get one? Who pays? 

Yeah, that’s what I thought. It sounds like rent at a % of turnover is fine for large retailers negotiating across hundreds of stores, but for small single shop businesses it’s a no go. Too much auditing overhead. 

Link to post
Share on other sites
On 16/09/2020 at 11:51, Timm said:

Pension crisis.

Annuity / yield crisis.

But that's been the case since BoE ZIRPed rates.

BoE needs to have emergency cut in government n unfunded public sector whilst ZIRP is in place - move retirement to 72, slash pension payout by 50%

Link to post
Share on other sites
On 17/09/2020 at 00:16, scottbeard said:

I believe there are councils who have invested in commercial property - although I have no data on this, and no data on whether specifically they have invested PENSION money in it or other funds.

What irritates me (as someone who works in pensions) is when posters such as those above throw out the idea that suddenly this means there is a "pension crisis".  It doesn't.  Commercial property is only one asset class, and not a particularly significant one for most pension funds - that's my point.  Clearly if some random councils have decided to go all in on it then that's a problem for them - but that doesn't constitute a wider pensions crisis.

Councils have been warning between the rate that they can borrow  from pwlb and the return commercial property.

https://www.thebureauinvestigates.com/stories/2020-05-21/treasury-bans-council-property-speculation-revealed-by-the-bureau

Alot have gone for property investment outside their borders.

A few are speculating on moon beam lunacy.

https://www.thebureauinvestigates.com/stories/2019-04-27/spelthorne

Council officers need jailing and stripping of all assets. And the council forced into bankruptcy, jobs n pensions to be lost.

 

Annuity funds convinced themselves commercial property matched life risk. Failed to account for internet.

They be better off in rented resi prop a la Barbican.

 

Link to post
Share on other sites
16 hours ago, Bear Goggles said:

It’s also be interesting to know how much turnover varies from shop to shop on the high street. Do Costa, Mc Donald’s, Primark and Hugo Boss all have a similar turnovers per sq ft? Or are they completely different?

V v different.

Ditto profit margin.

Most supermarkets trade at v level ptofit margins.

https://www.hl.co.uk/shares/share-research/201911/sainsbury-profits-down-but-in-line-with-guidance

3%

Link to post
Share on other sites

More red meat in today’s Sunday Times. 

Landlords quake as the roof falls in on values

Paywalled but here’s the highlights:

Hammerson, owner of the Bullring in Birmingham, was forced to sell 3.7 million shares at a 95% discount to raise £550m last month.”
 

“dozens of shopping centres are thought to be de facto owned by banks that lent mortgages against them”
 

“There is concern that extending the [rent] moratorium until the end of the year undermines the concept of rent as a contractual obligation“
 

Also, plenty of “won’t someone think of the pension funds” from LL groups. Apparently LLs are accruing interest from banks on unpaid mortgages on commercial property. Estimates of £4.5bn worth of unpaid rent by the end of the year.

With the end of furlough squeezing incomes and a second wave lockdown approaching, it looks like it’s going to be a bloodbath out there by the end of the year.

 

Link to post
Share on other sites
25 minutes ago, Bear Goggles said:

“dozens of shopping centres are thought to be de facto owned by banks that lent mortgages against them”

Good job the banks have been thoroughly stress tested since the last crisis and passed with flying colours.   

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    No registered users viewing this page.

  • 433 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.