Landlords also need to realise the trends underway. Gone are the days of large chains dominating small high streets with high rents. Say goodbye to that. No one really liked them – people only went to them because they were the only option because they paid the highest rents. But as soon as consumers had to be careful about spending, they were the first businesses consumers avoided like they were lepers.
Consumers are demanding more JoJo Maman Bebe’s than Mothercares (small but packed stores with high quality products rather than huge, sparse stores with mediocre stock).
There is a mass influx of barber shops and hairdressers. Stop this now. It is not in anyone’s interest long term or short term. Instead, reframe your asset from a passive income generator to something you need to be actively involved in. Here is a list of options for landlords struggling to rent their premises:
- Sub-divide the premises into smaller lettings. This diversifies your risk by renting to multiple tenants, while making rents more achievable and accessible for new businesses.
- Fitout the store yourself in such a way that it can be readily changed to a new business. That might mean standard but modern and neutral shopfront signage, lighting, flooring, shelving and front desks if it is a retail premises. Or it might mean a kitchen, tables, flooring and shopfront signage for a food premises or cafe. Yes it will cost you, but it will mean you can quickly change tenants when and if you need to. You will also be able to charge tenants higher rent because you are effectively leasing a ready-made business rather than the shell of a property. And because they haven’t had to spend a lot of money on fitout, it will make your tenants more likely to succeed and keep paying you that rent.
- Encourage applicants to share their tenancy or offer multiple symbiotic businesses under the one tenancy. Think coffee shop and book shop; gift shop and florist; bike shop and coffeeshop; music instrument store and a clothes shop; barber and tattoo artist; wine bar and pizza shop; greengrocer, bakery and delhi.
- If you have a bigger premises, create a food hall stocked with micro-casual dining outlets. If you don’t want to spend the money fitting it out, then rent it to someone that does for that exact purpose.
- Force your new tenant to go through a business assessment to identify weaknesses in the business model and give strategies to maximise its sustainability.
- Do not do any of this. Instead reduce the rent to something more sensible by recapitalising your bank loan over a longer period so monthly repayments are less.
Consumer demand for collaboration, leisure and education activities is booming. Virtual reality experiences, softplay for children, escape rooms, indoor sports, wellness activities, automated tutoring, low cost gyms, collaborative workspaces that double as cafes. Track down good operators of these businesses and encourage them to take your lease.
This is one of those times where your investment could be worthless unless you support the landlord to recapitalise their loan to pay for the options listed above. It’s unlikely another bank is going to authorise a loan for someone to buy the property off you if you foreclose on the landlord. So you are in a no-win situation already. Support the landlord with the finance they need to make the property an attractive property for tenants and an income generating asset for you and the landlord again. It is basically your only option.
Likewise your landlord can no longer expect to charge £3,500 per month in rent for a shop the size of a small house’s lounge room on a non-London high street. The landlord’s debt needs to be restructured so it is more sustainable and reflects the actual ability of a business to generate income to cover such a disproportionate rent. Some common sense here please!