Dave Miller

What does the changing retail sector mean for commercial landlords and lenders?




We all know that when times are tough, the first thing to go are the luxury items.

So, the recent financial problems of pricier clothing brands, such as Karen Millen, comes as no surprise.

Online is a huge competitor for the traditional retailer, and many of the high street stores that have struggled have either failed to get their online offering right, failed to give consumers an experience worth having in their physical stores, or both.

So, consumers are increasingly choosing to shop online instead of in-store, preferring to use Amazon and the like instead of the retailer’s own websites, because it is cheaper and easier, and when they do go on to the high street, they’ll visit those stores offering something they can’t get anywhere else.

The one anomaly in this is the high-end brand Burberry, which recently posted higher than expected UK sales. In theory, luxury brands such as this should be struggling, and many are. So why not Burberry?

It is all to do with tourism and the weak pound. The pound has hit fresh lows against the dollar and the euro in recent months, and as the risk of a 'no-deal' Brexit looms, tourists are taking advantage of the exchange rate by buying up luxury brand goods in the UK.

This makes for a very strange high street at the moment, as we have budget and high-end brands doing well, while the traditional high street ‘stalwarts’ struggle. 

Sadly, it is the fate of those middle retailers that have the biggest impact on the wider economy. They employ more people, so when they struggle, the effect is wider, plus, most of them don’t own their prime town and city centre properties, which means landlords all over the UK are being impacted, too.

For those commercial landlords with large portfolios, the failure of one retailer may not affect their affordability, as they can offset the loss of earnings until a long-term solution is found. 

But for others, if a retailer fails and leaves them with an empty retail unit — which, of course, despite receiving no income from, they will still have to pay business rates on — it could result in arrears and, ultimately, repossession. Even those that do not lose tenants may struggle, as many are starting to realise their negotiating power — particularly if they have a chain — and pushing for huge cuts in rent, putting landlords between a rock and a hard place.

The high street is unstable, which is why it is so important that lenders understand and prepare for the potential risk of their commercial borrowers falling into arrears as a result of the challenging retail market.

The lenders who manage these risks most successfully are those that engage with third parties, helping them to assess their commercial borrowers’ financial stability and performance of their security. 

We work with lenders on their commercial portfolios, helping them evaluate, review and monitor the performance of their commercial borrowers. We provide detailed reports and analysis on the property, the borrowers’ circumstances and the wider risks to both the customer and, most importantly, the lenders’ security, offering advice and solutions on the best way forward.

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