Climbing rents and falling sales may lead to as many as 80,000 empty high street stores by 2017, costing the economy up to 800,000 jobs and decimating the value of retail property, according to new predictions from the British Retail Consortium (BRC).
Knight Frank’s UK Market Outlook Report for June raised concerns of a three-tier property market recovery. Retail property sat firmly in the bottom tier, with capital growth of 0.2% and rental value growth at zero. The BRC, however, says the problem really lies with business rates.
Business rates are linked to both inflation and property values. As a result, business rate bills have risen by 27% since 2008. During the same period, pre-tax profits fell by 32% at the largest retailers.
These numbers put pressure on the high street, but what’s really driving the BRC’s apocalyptic predictions is the fact that many high street leases are 25-year agreements signed in the expansions of the ‘90s, meaning that numerous struggling retailers could simply opt to walk away when renewal time comes around.
Reforms to the business rate system, which could mean reducing the overall burden on landlords or severing the link with property prices entirely, could ease the situation. This wouldn't be enough on its own, however – commercial landlords will also need to help create a sustainable retail environment. After all, to ignore the problem is to risk long-term damage to their investment.
In a scathing piece for Retail Week, Ian Middleton, founder of retail jeweller Argenteus, attacked the conflict of interest at the heart of the high street development model. Developers, he contends, have a vested interest in keeping rental expectations "unrealistically high" and would rather see a store empty than its theoretical value fall.
In other words, retail landlords will have to decide whether to risk pushing values up at the expense of a sustainable retail environment, or to sacrifice a proportion of rental yields in the hope of reviving the high street.
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