The changing face of the High Street has been under discussion for some time, with Covid pushing some major brands into insolvency processes such as Administration, Voluntary Arrangements or Liquidation, whilst others have taken the decision to shut some or all units, in favour of online trading.
Peter Watts, Partner at Shaw Gibbs takes a look at current and future high street trends.
Rather than ruminating over my crystal ball about what may happen to the High Street in coming years, this article covers the trends taking shape right now, and how businesses and landlords alike can embrace the regeneration agenda for longer-term success.
One thing I have noticed is that there has been an emergence of units previously used for retail/hospitality being re-appropriated as ‘experience venues’. For example, our office on Great Portland Street, Marylebone is now neighboured (on the site of what was previously a restaurant) by an indoor drinks and cricket venue called Sixes. Tottenham Court Road has welcomed Monopoly Lifesized which boasts ‘escape room style-challenges’ for teams travelling around a life-sized Monopoly board and rumour has it that a number of Debenhams sites are now being turned into indoor go-karting tracks.
Far from being new to the High Street, experience venues have been thriving for some time. Fans of crazy golf will know that Junkyard Golf has been around in the UK since 2015 and Swingers appropriated the Oxford Circus building which used to house BHS back in 2018. Golf was closely followed by the similar concepts of Bounce (ping pong) and Flight Club (darts). The O2 Arena has long-sought visitor footfall with the blend of shopping, entertainment and food, and have included the likes of Climb and Dine and more recently Toca Social, an interactive football and dining experience, and Tikky Town which is exclusively for creating content for visitors to post on Instagram and TikTok.
Landlords with large unused retail/hospitality space in premium locations are now more open to suggestions for alternative businesses in order to: fill their units, ensure business rates are covered and avoid penalties. Banking covenants, for example, may be breached if premises are left empty for more than a specified timeframe and/or financial targets missed.
“An occupied property will almost certainly be desirable to an empty one, especially in the current climate where it is likely that it will be hard to find a replacement tenant.” says my colleague Karyn Jones, who is an Insolvency Practitioner for Shaw Gibbs in our London office. “We have found that there is room for negotiation from both the tenant and the landlord perspective, and this is where I have been spending significant time over the last six-twelve months”.
If a unit is repurposed for a use which the original lease did not state, the landlord and tenant may need to agree a ‘Change of Use’. This according to Piara Dhooper, Real Estate Partner for law firm Axiom DWFM , can be time consuming
“If the original lease only contains a narrow use class, it can be harder to negotiate a change of use. The traditional user clause (pre-Covid) may restrict the tenant’s use to a specific purpose, such as ‘office’ or ‘retail space’. The tenant’s ability to change the use will be dependent on a number of considerations such as; the user provision contained in the lease, any planning considerations or non-compete clauses in other leases within any estate etc There is widespread speculation as to whether, post-Covid, landlords will allow more flexibility to the permitted user provisions in their leases”
In some circumstances. leases may also need to be renegotiated with the financial implications of Covid in mind, for example turnover based rent agreements where the tenant pays more rent during periods where trading is good and less when trading falls are becoming part of the common narrative.
“This is an arrangement that suits businesses in times of adversity and has been the bedrock for saving brands such as All Saints and Bensons for Beds through the pandemic and ensuring their landlords have not been put significantly out of pocket” comments Karyn.
Whilst there is no legal obligation for a landlord to accept a turnover based-rent agreement, it is a decision which needs to be made with the future of the site in mind. Putting this kind of arrangement in place is risky and should be considered carefully by both parties in case it is delaying an unavoidable conclusion. This is where a cashflow forecast comes into play, as this allows the tenant and the landlord to gain a clear picture on whether the business has long-term sustainability. I have worked with several of my retail clients on turnover-rent agreements and the cashflow forecast is pretty-much the essential piece of the puzzle which allows the agreement to be accepted or declined by the landlord.
Piara advises, careful consideration is required when agreeing and drafting turnover based provisions
“…there are a number of downsides in poorly negotiated and drafted turnover rent provisions. Any kind of ambiguity in the clauses can lead to messy disputes. It is important for concise language to be used and for the agreed turn over rent formula to be tested (hypothetically) to ensure that all parties are clear as to how the provisions are to work in practice.”
I have seen this kind of re-negotiation of leases working best when it is carried out with management information including budgets and cashflow forecasts dovetailing with Karyn’s negotiating skills, to produce a compelling argument for resetting the terms of a lease. An experienced property lawyer such as Piara will ensure the legal documentation stacks up. Above all, a team of professionals who cover these three angles, will be able to opine whether payments can be made; and the future will look bright enough to bring the rent up to the market rate at a later stage.
The other aspect to this is of course that customers need to be enticed back to the High Street after months of lockdown and restrictions. The ease of online shopping in both the delivery to the home or by click and collect means that the customer needs persuasion to linger in the town centres/High Street. Shopping trips need to be pleasant and linked with visitor attractions and, if am allowed a small crystal-ball moment, I question whether the previously unremarkable out-of-town retail parks may see a resurgence with their warehouse-style sheds and plentiful parking being used as destination spaces.