Fleurets: third of all rent reviews result in increase

By John Harrington

- Last updated on GMT

Related tags: Rent, Renting

The Fleurets survey found that a third of all rent reviews resulted in an increase
The Fleurets survey found that a third of all rent reviews resulted in an increase
The Fleurets Rental Survey reveals that despite market conditions a third of all rent reviews resulted in an increase.

The property agent said it handled 37% more rent reviews among licensed retail premises in the past 12 months compared to the previous year, which it says could reflect an upturn in the market “or at least the end of the downturn”.

The survey anticipates an increase in rent review activity over the next 12 months and details the outcome of rent reviews across different parts of the country.

It found that:

London

The highest number of rent reviews, saw an overall average rent increase of 8%. Of the 62% that had rent increases, 25% saw growth of less than 10%, 19% between 10% and 20%, and 18% above 20%. Nine percent had no rent reduction and 29% experienced no change.

South and west

An average increase of 4%. In total 13% saw a decrease and 46% experienced no change. Of the 41% that had a rent rise, 19% saw an increases of less than 10%. For 14% the increase was between 10% and 20% and for 8% the growth was above 20%.

Midlands

Average rents in the Midlands actually declined by 1% after a review as 22% achieved a rent reduction. Overall 39% experienced no change in the rent and the same proportion saw an increase; for 13% the increase was above 20%.

North

The north experienced the lowest number of reviews but average rents grew 3%, with 4% seeing a decrease. Nearly two thirds (62%) had no change and 34% saw a rent increase, with 8% above 20%.

Third of all reviews resulted in rent increases

Fleurets said: “It is evident from the following figures that a large proportion of reviews (particularly those with upward only review clauses) are being agreed at zero uplift, suggesting market rents are below the contracted rent.

"However it should be noted that despite the market conditions a third of all reviews resulted in rental increases.

“Fleurets have dealt with a large number of reviews over the past twelve months, up 37% on the previous year, which perhaps reflects that we are at long last beginning to see an upturn in the market or at least the end of the downturn.”

It added: “We anticipate there being increased activity over the next 12 months. Institutional landlords will be looking for growth given the lack of movement in rents over the past five years.

"In addition we expect that the pubcos will continue to work within the new Code of Practice guidelines. This is likely to result in rents throughout the country being agreed at affordable levels.”

Tied pubs

Fleurets said a number of rent decisions have ended up below the passing rent. The agent stressed the impact of the updated Codes of Practice from pub companies, which allow rents to go down as well as up.

“Ultimately it is far better for a landlord to have a tenant in a property paying the correct rent rather than having an over-rented tenant struggling to meet his obligations. In addition, there is an increase in tenant support, with increased wholesale discounts being passed on to tenants. We anticipate this continuing for the foreseeable future.”

Fleurets said traditional three-year tenancies “have become more desirable” recently. “These tenancies are generally on internal repairing terms and quite often have a full tie.

“Historically, when there was a buoyant leasehold assignment market there was generally a greater desire to take on longer leases also on full repairing terms.”

PIRRS

Fleurets said it was interesting that the Pub Independent Rent Review Scheme (PIRRS) has had a “relatively low number of referrals” with “only a handful ending up with a determination”. PIRRS is being used as a “negotiation tactic” rather than being “fully committed to progress cases and incur these additional costs”.

Free of tie leases

Fleurets has noticed an increasing trend of freehouse owners, who are unable to achieve their desired prices for a sale in today’s market, choosing to lease pubs free-of-tie.

Landlords of free-of-tie sites can struggle to re-let on the same rent level, Fleurets argued.

It said: “When the pub becomes vacant landlords often have no proof of what turnover and profits the business previously enjoyed (unlike a tied lease where the barrelage provides basic guidance). It is therefore often difficult for landlords to re-let premises at rents as high as they previously were.”

High street bars

Fleurets said it has witnessed many reviews among high street bars being settled at nil increase.

“Without exception rent review provisions are upward only and with falling market rents the contracted rent continues to be paid. As a consequence we are seeing a number of pub companies seeking to re-structure leases with their landlords. In many cases this is a last ditch attempt to obtain an affordable rent; otherwise the tenant may enter into a form of pre-pack administration.”

The agent said that where these units have failed, it’s now seeing restaurateurs and retail operators re-take the space. “In addition some of the failed units have been re-occupied by other pub companies, though at significantly lower rents than previously being paid and in many circumstances for an already fitted-out bar.”

Nightclubs

Fleurets suggested the nightclub sector “may have turned a corner from the problems of the last five years”, with a “significant increase in instructions throughout the country”.

It pointed to the fact that positive trends in London and the south “are slowly starting to filter out to the regions”.

However, Fleurets said: “For the larger standalone nightclubs rents will generally be lower per sq ft than for smaller units that compete directly with the late night bars. We anticipate that rental levels will remain competitive for the nightclub sector with limited opportunity for growth other than those that may operate in prime locations.”

It added: “In recent weeks the late night levy has been debated by a number of local authorities. Whilst a number have dismissed the idea, Newcastle City Council decided that they will work up proposals for a late night levy. This can only have a negative impact upon profitability and ultimately rental values of the late night sector.”

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