WBC Blog - commercial rent

What goes up but never comes down? Commercial Rent!

Is anyone else’s commercial landlord, taking the mick? That’s the question we’re asking at WBC. Managing Director Andrew Wilson discusses the elephant in the room for anyone reliant on business property during the covid crisis. What goes up but never comes down? Commercial rent!

WBC Packaging Managing Director

With the stock markets crashing around our ears, and many businesses having to shut down with little or no notice, I am once again amazed by the commercial property sector.

I may be being unfair. There may well be good landlords out there somewhere. But I thought it would be interesting to share our experiences over the last few years, and more importantly, days.

Over the 30 years WBC has been trading, we have leased a number of properties. From small serviced offices to much larger industrial warehouses. Invariably, our experiences have been poor.

We have been through many ups and downs in the economy in that time. The one thing that never goes down is our rent. We dream of owning a modern warehouse one day. Till then, our current home is a couple of very tired 1970s buildings with poorly-designed gutters that overflow into the building in heavy rain and are almost impossible to heat in winter.

They are based in a rather desolate industrial area behind IKEA in Croydon. When the wind is blowing in the wrong direction, the nearby local sewage treatment plant adds a faint whiff of a farmyard to the equation.

What goes up but never comes down?

Up until recently, WBC was charged a reasonable annual rent for these. But in November 2018, this was increased by over 30%. We argued against this of course, but there are always local comparisons that are used against you. Even though these properties are hardly like for like, it seems there is little recourse to argue. So we have had to grin and bear it.

Don’t get me started on rates. We are paying close to £100,000 per annum for pretty much nothing. On top of all of this are the management charges for running the estate, which again, seem to be an awful lot for nothing tangible.

So having got that out of my system, how have our dealings with our landlords gone in the last couple of weeks? Let’s start with the good news. We have two small units that serve as our HQ. One of these is owned by our pension fund. The other is owned by a private individual who used to run a business from it before he retired. He has always been more than reasonable, and the rent is broadly his pension.

Cloud Cuckoo Land…Lords

Without me even asking, he offered us 25% off the next quarter, and we were happy to accept. Our much larger units in Croydon are owned by M&G Real Estate. We approached them recently with a well-costed plan to see us through the next 12 months. This broadly involved a 30% reduction in rent, which was commensurate with the decline in business levels we were seeing and expecting to continue.

Our landlord’s response? “Whilst they accepted there was a problem in retail, they saw no issue with industrial premises”. The best they could offer was to switch to paying monthly or to defer payment of this quarter to next quarter. So in a nutshell, absolutely nothing!

I pointed out that this stance would make it very difficult for us to continue functioning and lead to problems further down the line. They said that they had to protect their investors’ income. I found this strange at a time when investment companies like this have seen the value of their funds plummet and dividends cut everywhere. But they seem to think that commercial property is unaffected by the chaos.

…the problem in a nutshell 

It perfectly sums up the problem with commercial property in my mind. The power has swung so far to the landlord that the market is not functioning.

Whilst not perfect, the government’s response has been extremely helpful. We have been able to take advantage of a few of the initiatives with rates reductions and possibly a grant.

They have also made it impossible for a landlord to evict a tenant for the next three months. So having tried to be reasonable and offer solutions to our landlord, we have now decided not to pay this quarter’s rent and to start negotiating again towards the end of June.

At that point, we may well try to argue for a turnover based rent until April 2021. That would see us paying between 70-100% of our rent depending on turnover comparison, against the same month in 2019/20. I think that a retailer has a better chance of getting a deal, but I have heard some enlightened landlords are looking favourably at deals like these.

By then, hopefully, they will have come to their senses. Hopefully, they’ll begin to realise that the pain has to be shared. I am not holding out much hope but will keep you posted. It is hard to know what to do, though, so any information or feedback that you might have in dealings with landlords would be great to hear.

As always you can leave a comment below, or email me directly at andrew@wbc.co.uk. It goes without saying, we appreciate your business more than you know.

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