Last month retailer BHS entered a company voluntary arrangement (CVA), enabling a compromise to be entered into between the company and its creditors. A stay of execution was won as creditors approved the rescue package for the iconic British store stopping the business going into administration, and 10,000 jobs being lost.
A major factor in the CVA involved BHS being able to reduce its rent bill, with property owners accepting cuts in rent on more than half of BHS’s 164 shops. It was feared up to 50% of these stores could close over the summer if an agreement on the amount of rent reduction could not be reached with landlords.
Clearly, entering a CVA isn’t the ‘go-to’ position for reducing rental costs, and associated business rates. So what options do businesses have for these unavoidable costs?
Firstly, lets look at the broad market trends;
- The commercial property market saw a 13.9% return on all property in 2015. This has been put down to strong rental growth and increasing capital value growth
- Rental growth for industrial property and UK offices rose to 3.8% and 7.8%, respectively for 2015 against an all property average of 3.8%
- Standard retail was estimated at 2.2% while retail warehouses showed estimated rental growth of 1.0% and shopping centres just 0.6%
- Rental growth was expected to decline for offices and industrials during 2016, but improve for all types of retail property with forecasters expecting an average of 3.3% nationally. Regional offices are expected to be more as they benefit from typically lower prices and as such can offer higher yields.
If you are looking for ways to reduce the costs you pay on your property estate, three initial steps we recommend are:
- Contest property appraisals and tax assessments (aggressively) - advice from one hotel chain is to not become overly frustrated if local government officials, who have budget shortfalls of their own to fill, don’t fall over themselves to reassess your property. The negotiation process is an art. You get a lot of ‘nos’ before you get a ‘yes’.
- Untenanted periods – stores, offices, factories etc. are constantly being refurbished, in whole or in part. You may negotiate a reduction or freeze with your landlord, but does that always come through in your billing? – in our experience, no. Equally, you may be entitled to rates rebates for the periods of refurbishment.
- R&D Tax Credits – there are various costs which qualify for R&D tax credits, including power, fuel and water – areas often managed under the property ‘cost centre’
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