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Bewley's and Debenhams demonstrate thorny issue of retail rent

Richard Curran


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Bewley's on Dublin's Grafton Street

Bewley's on Dublin's Grafton Street

Debenhams

Debenhams

Bewley's on Dublin's Grafton Street

Bewley's on Grafton Street, which is shutting down, isn't the only retail or service outlet to have locked horns with a landlord over rent. There is now a big logjam in the system around who is paying what in rent and who is not.

Nowhere is this more likely to be true than in shopping centres. Under the Irish Government's reopening strategy, shopping centres such as Dundrum Town Centre, co-owned by real estate firm Hammerson, are not pencilled in to open until phase five, or August 10.

Shopping centre operator Hammerson had to terminate the £400m sale of seven retail parks in the UK after the prospective buyer, Orion, got cold feet about the deal.

Orion was due to close the deal at a 22% discount to last June's book value, but didn't want to proceed. And why would they? The UK economy is forecast to shrink by about 14% this year and months of closed retail outlets will inevitably impact on rental income, and thus the value of the properties.

Rent was also in the mix when Debenhams in the UK said this week it would close a further five stores, all of them in Hammerson-owned shopping centres, because it couldn't reach a deal with the landlord on a rent restructuring. None of Debenhams' five Northern Ireland stores are affected.

Debenhams said it had agreed terms on the vast majority of their UK stores, but had been "unable to agree terms with Hammerson on our five stores in its shopping centres, so they will not be re-opening".

Hammerson has said it received only 37% of rents billed on the last quarter day in March. The short-term outlook for shopping centres is not good because of the coronavirus. Not only will they remain closed until mid-August, they are also likely to carry plenty of social distancing measures when they do finally open up again.

Shopping centres have been opening up in the last week or so across a number of US states. In Texas, for example, the restrictions are onerous. Typically, a shopping centre can only allow 25% occupancy, some entrances must be closed, all staff have to be temperature-tested and wear masks, and free masks are handed out to customers.

Fitting rooms and rest rooms in some clothing stores are closed while others have a policy that any garment tried on or returned must be removed from the sales floor for 24 hours. Food outlets are takeaway only or must have very limited seating numbers. Shops are open for limited hours to allow for daily deep cleaning.

It isn't an enticing shopping experience. But it also raises big questions about how retail tenants will be able to make money in those conditions and how that might impact on rental payments even after reopening.

Belfast Telegraph