Retail rents - has anyone ever tried to justify them?
Discussion
Often the valuation on the property is based on the expected rental income.
If they drop the rates, the valuation of the property reduces. This could well put them out of kilter with their borrowing and the lender call the loan.
E.G.
If you assume an annual rent of £50,000 (but asking £60,000) and the multiplier is 5, that'd give a value of £250,000 for the unit. The landlord puts down £50,000 (20%) and borrows £200,000 (80%). 80% LTV being the lender's limit.
If he dropped the advertised and agreed rate to £35,000 the lender would view the property being worth only £175,000 and therefore putting the unit into negative equity by £25,000. Because the LTV is now 114% (approx) the lender calls the loan as the profile no longer works for them.
At say 4.5%pa interest - £9,000pa or £750 per month, it's a lot easier to find £750 each month than it is to find £200,000!!
If they drop the rates, the valuation of the property reduces. This could well put them out of kilter with their borrowing and the lender call the loan.
E.G.
If you assume an annual rent of £50,000 (but asking £60,000) and the multiplier is 5, that'd give a value of £250,000 for the unit. The landlord puts down £50,000 (20%) and borrows £200,000 (80%). 80% LTV being the lender's limit.
If he dropped the advertised and agreed rate to £35,000 the lender would view the property being worth only £175,000 and therefore putting the unit into negative equity by £25,000. Because the LTV is now 114% (approx) the lender calls the loan as the profile no longer works for them.
At say 4.5%pa interest - £9,000pa or £750 per month, it's a lot easier to find £750 each month than it is to find £200,000!!
Well you should always negotiate the rent on a unit and seek the lowest possible rent. Do remember be careful with stepped rents and rent free periods as it is the rent at the end of the period that will determine your rent for the rest of the term.
In big shopping centres landlords can tailor rents to attract tenants to ensure their tenant mix, so they may offer deals if you happen to provide the opportunity they want.
In the High Street it is more difficult as different units could be owned by different landlords. The problem comes that they then have limited incentive to let units to achieve a good tenant mix, they are more likely to want to maximise rental income.
In big shopping centres landlords can tailor rents to attract tenants to ensure their tenant mix, so they may offer deals if you happen to provide the opportunity they want.
In the High Street it is more difficult as different units could be owned by different landlords. The problem comes that they then have limited incentive to let units to achieve a good tenant mix, they are more likely to want to maximise rental income.
Certainly depends on the suitability of the property as well.
I've seen 500sqft units in city centres asking for headline rent of £80,000pa upwards.
These units would only work well for high margin trade (Food).
My local shopping centre has a large food court with 6 food outlets, McDonalds, KFC, Subway.
The remaining 3 outlets have never had permanent tenants, 2-3 years max.
The tenants come and go, the rents are over £100,000pa + Rates + Service Charge + Building Ins.
Of course if you came to the landlord with a good covenant (that being your company or brands reputation), and a 15-25 year lease with a break at 5-15 years, you will probably get a good deal, but if you're a startup, then you're f****d.
It always makes me laugh when people moan about online delivery charges, when they forget that going in to town often costs time, petrol, parking, and a contribution to absolutely sky high rents and rates loaded in to the retail price.
I've seen 500sqft units in city centres asking for headline rent of £80,000pa upwards.
These units would only work well for high margin trade (Food).
My local shopping centre has a large food court with 6 food outlets, McDonalds, KFC, Subway.
The remaining 3 outlets have never had permanent tenants, 2-3 years max.
The tenants come and go, the rents are over £100,000pa + Rates + Service Charge + Building Ins.
Of course if you came to the landlord with a good covenant (that being your company or brands reputation), and a 15-25 year lease with a break at 5-15 years, you will probably get a good deal, but if you're a startup, then you're f****d.
It always makes me laugh when people moan about online delivery charges, when they forget that going in to town often costs time, petrol, parking, and a contribution to absolutely sky high rents and rates loaded in to the retail price.
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