As pressures mount on operators, their relationships with landlords are becoming increasingly important. But, are both sides speaking the same language? David Abramson, chief executive of leisure property consultant Cedar Dean, discusses for MCA Insight.
Over the past few weeks we have seen the execution of two CVAs for big names in the restaurant world. Both Jamie’s Italian and Byron have been left with multiple vacant units, and Prezzo set for the same. The question that many landlords and operators will be asking is: how can these sudden and unplanned closures be avoided?
There are several key issues which are essential from our experience as an advisor on lease restructures. Firstly, both restaurant operators and landlords need to collaboratively understand the likely sales of any given location because, ultimately, this creates the yardstick upon which all costs can be paid.
Historically, rents were always 5% to 10% of total turnover. But over the last decade or so, we have seen this creeping up year on year, to what in some cases has become unsustainable levels. If operators were able to have frank conversations with their landlords about their anticipated sales, more realistic levels of rent could be put in place.
Clearly operators have also been faced with other rising costs such as wages and costs of sale. But when rents have doubled in some locations along with the rates increase this is the final straw, as it were, for some of these operators.
This point is certainly getting through to many landlords and we understand recently that a significant central London institutional landlord is now taking into account the forecast of turnover when accepting restaurants into its new locations. Nevertheless, they are very much the minority.
The majority are still fixated on open market rents, based on pounds per square foot, which may have no bearing on sales and profit. As long as landlords refuse to accept that the restaurant success is their success, we will keep seeing these CVAS, administrations and vacant outlets.
One of the major hurdles in landlords and tenants connecting on the level of discussing their turnovers is the very established formal surveying network which is based purely on comparable evidence, and in turn, pounds per square foot. This establishment which keeps landlords away from their own tenants means they are not able to understand the genuine challenges that an operator may be facing in their business.
We are looking to encourage more direct discussion during the term of the lease rather than simply waiting for the end of a lease or rent review before landlords and tenants are engaging.
The property business has historically always been a partnership between landlords and tenants and this is why it has worked so well. As many know the only real partnerships are winwin, otherwise, they are winlose, which inevitably leads to all sides losing.