Retail’s reckoning as landlords blast mooted empty shop laws

“Half-baked”, “unworkable”, “disappointing”. These are just some of the ways in which industry leaders have described mooted new laws to force landlords to rent out shops that have been left empty for more than six months via compulsory rent auction. James Raynor, chief executive of Grosvenor Property UK, tells EG there is a “falsely paternalistic view” that property owners are happy with owning vacant premises. “Sensible landlords will react – no one wants vacancies and they want to ensure their locations are vibrant,” he says. “The market needs to be allowed to evolve. The government needs to be more thoughtful about other sectors [and] push landlords to do more interesting things, rather than beat them over the head again.” Under the proposed laws, set to be introduced next month as part of the Levelling Up and Regeneration Bill, local authorities would be able to invite bids from prospective occupiers through an auction process. Raynor says: “You can see the high-level logic of ‘if it’s empty, just use it’, but the imposition of things like that onto private individuals and companies seems like a level of intervention you don’t see in any other area. “We have a housing crisis – why isn’t the government saying it will force people with second empty homes to lease them to people who need homes? We have a cost-of-living crisis, why not push utilities companies into reducing bills in the same way it pushed landlords into rent moratoriums? Commercial real estate has an odd place in the government’s eye at the moment.” Raynor adds that nuances such as tenant negotiations, which can take a year, have not been factored in. “For me it’s not about trying to inhibit advancement but to be thoughtful about it,” he says. “Coming up with blunt solutions to nuanced issues isn’t necessarily the right thing to do.” Instead, industry leaders say the government should either turn its attention to other sectors or look to support landlords in filling empty premises by overhauling business rates, introducing a tax on online sales, more creative thinking around public-private partnerships or setting up town centre investment zones. Larger landlords that are devising innovative solutions to address the problem include Landsec, which launched one-day leases for retail and leisure occupiers this week as part of a package of new offers to improve access to physical spaces for tenants of all sizes. Jonathan De Mello, founder and chief executive of JDM Retail, says the government’s proposals are a “good idea in principle but in practice, it’s not workable”, adding that the legal ramifications are “myriad”. “Landlords contractually own those buildings so they have a right to do what they want to do with them – how do you force them to let out their properties to businesses they don’t necessarily want in there?” he posits. De Mello emphasises that the process “must be collaborative, rather than antagonistic”. “Landlords are being collaborative with retailers – rents have dropped by some 30% since 2019 across the UK on average,” he says. He warns that, as seen from the outcomes of retail and leisure CVAs and administrations, holding compulsory rent auctions could lead to an increase in “addiction-based retail”, such as vaping shops, betting chains and pawnbrokers, which in turn are difficult for independent or smaller businesses to compete with. This in turn could increase the risk of a “spiral of decline” in certain locations where chains such as Next or Boots may decide to relocate if the tenant mix becomes more weighted to retail that is seen as “undesirable”, resulting in yet more vacancies. Myriad scenarios Melanie Leech, chief executive of the British Property Federation, says rent is unlikely to be the biggest barrier to finding a tenant, since many owners are already offering low or nil rents to keep tenants in place. “The pandemic drove innovative thinking, new kinds of relationships – coming out of it, the market is continuing to evolve,” she says. “Landlords are being thoughtful about curating a mix and a place, and not necessarily going for the highest rents. “That is ample evidence that rushing in with an apparently half-baked, ill-thought-through measure to impose tenants in empty places is the last thing we need.“ Leech adds: “We have some cases where there are absentee landlords not taking responsibility for their properties, but then what are CPOs for, if not to deal with those situations? “Other than that, you have a whole range of different scenarios where this proposal is not the answer to any of them – it could be that a tenant still has a lease but can’t afford the rates, insurance or operating costs of being there, or a building that doesn’t meet the minimum environmental standards, or a developer is waiting for an opportunity to redevelop. “There is so much more to bringing a building back to life again than just telling a landlord they have to take a particular tenant. It doesn’t work without support mechanisms and policy initiatives.” To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews Image © Emanuele Giovagnoli/SOPA Images/Shutterstock