Commercial landlords across North East England need to be prepared to adapt to a ‘new normal’ in the face of many High Street retailers’ continuing difficulties.
That’s the view of Andrew Haslam, North East chair of insolvency and restructuring trade body R3, in advance of the latest Quarter Day on which commercial rental payments are traditionally due.
New research by R3 has found more than two-fifths (44%) of the almost 3,500 active retail businesses across the North East were facing a raised risk of getting into financial difficulty in the next year.
The sector’s insolvency risk has risen quickly over the last year, from 31% in November 2017 and 34% at the start of 2018, and while the recent heatwave saw the rate of increase slow to a degree during the summer months, it still continued to rise.
The quarterly rent payments which traditionally fall around the 25th of March, June, September and December can represent a significant outgoing for retailers.
Numerous well-known High Street names have entered into administration in either the run-up to or days immediately following Quarter Days over the last decade, as the pressure to meet their rental obligations has proved too much for their finances.
Andrew Haslam, who is also head of specialist business advisory firm FRP Advisory LLP’s Newcastle office, says: “The continuing closure of well-known stores’ branches in the region’s towns and shopping centres is creating an oversupply of retail space that is becoming ever harder for landlords to fill.
“We’ve seen a number of well-known retail names either closing branches or disappearing completely in the last year, and the ongoing trials and tribulations of many others are rarely out of the headlines.
“The financial outlay associated with Quarter Day can have a big impact on retailers’ operations, and landlords face a difficult balancing act between getting the agreed contractual values for the space they’re renting out and potentially tipping their tenants over the edge into insolvency if they’re unable to meet their obligations.
“While some larger landlords have expressed concerns about struggling retailers entering into Company Voluntary Agreements (CVAs), it would seem to make commercial sense for them to adopt a flexible approach to managing their property portfolio.
“The vast majority are certain to want to avoid the worst case scenario of their property becoming avoidably empty, and negotiating with tenants in this sort of pragmatic fashion seems likely to become the ‘new normal’ for the sector.
“If any retail business owners feel that their rental costs could be a serious problems for them, they should be speaking to their landlords as soon as they can to see what can be done to satisfy both parties. The earlier that struggling retailers engage with their creditors, the better the outcomes can be for all concerned.
“The insolvency risk facing regional firms is continuing to rise across most sectors, and owners/managers must maintain a strong grip on their businesses’ financial situations, so they can take action as soon as they see any potential problems coming their way.”