John Lewis, Westfield Shopping Centre, White City, London, U.K. Friday, March 16, 2018. Photographer: Jason Alden Photographer: Jason Aldenwww.jasonalden.com0781 063 1642

The air is thick with tension between retailers, landlords and lenders at a time when stores are dark and spending, with the exception of online, has evaporated. Even after the easing of lockdown measures in Europe, shopping — at least in the near future — will most certainly be a slow-motion, awkward affair, with customers and staff wearing masks, keeping their distance from each other, and waiting in line to enter stores.

In this new landscape of social distancing, with shops currently shuttered and dim hopes that business will bounce back quickly, frustrations are rising.

“This is a totally unprecedented health and economic crisis, and every corporation has to play their part,” said Jace Tyrrell, chief executive officer of the New West End Company in London. “We represent landlords, businesses, hotels, luxury brands, high street brands. We all want the West End and Mayfair to be successful and recover — and we will.”

While the British government has put together a 350-billion-pound rescue package aimed at helping businesses, individuals, wage earners and the self-employed, many are still squeezed, and many banks are struggling to cope with an avalanche of demand for loans.

In France, where the financial rescue package for businesses across the spectrum has swelled to more than 100 billion euros, and with more than 8 million workers on part-time unemployment, a public struggle between large real estate companies and retailers has spilled into the public domain. Government officials are weighing in on the issue, and plan to meet with players in the sector by the end of the week.

In the U.K, Tyrrell said a lot of occupants, including hoteliers, retailers and restaurants, are in “massive distress,” one reason why New West End Company is supporting a letter sent earlier this month to Britain’s Chancellor of the Exchequer Rishi Sunak.

Penned by the London Property Alliance, a membership body for owners, investors, professional advisers and developers of real estate in central London’s commercial centers, the letter calls on the British government to help prevent business closures and safeguard jobs by extending mortgage and rent breaks to businesses and commercial landlords.

The alliance wants the government to urge lenders and funders, including the banks, to be more flexible with the property sector and to provide greater relief on business taxes. The letter points out that property companies are trying to help businesses through the crisis, “but are constrained in their ability to show flexibility to their tenants without breaching debt covenants and loan obligations, thereby risking their own assets, credit ratings and survival prospects.”

In an interview, Tyrrell added that the lockdown should also be a catalyst for structural changes in the relationship between lenders, landlords and tenants, with everyone exploring the idea of shorter leases, new retail concepts and different means of financing. 

 

The New Delvaux store on New Bond Street

The new Delvaux store on New Bond Street.  Courtesy Photo

 

“If we share the risk, we share the reward. The long-term landlords are really invested in this, and the short-term landlords have to rethink their model to make sure they’re in tune with their businesses,” he said.

While the government is trying to bankroll businesses and individuals alike, Sunak admitted last week that he won’t be able “to save every single job or protect every single business, and COVID-19 will have a significant impact on the economy. These measures are aimed at helping as many people as possible, mitigating the impact on the economy, and making sure that it bounces back as quickly as possible.”

On Tuesday, Sunak said that more than 1.1 billion pounds had been given to 6,000 U.K. businesses as part of the new package, with lending increasing by 700 million pounds over the past week.

Patrick Grant, who owns and runs Norton & Sons tailors on Savile Row, said he’s still waiting to hear back from his landlords about whether he’s going to get a break on the rent, as the shop is shut under the nationwide lockdown.

“At the moment, almost all of us on the street have one of two landlords, and I think we’re all waiting on news about what happens next. For now, we’re paying for shops that we can’t use. I understand the landlords’ situation, because they have debt with banks, and the banks [need to] do something to give them relief. The banks need to play their part in this and provide relief to the landlords, so that the landlords can provide relief to us. Everybody’s got a share in this.”

 

Inside the new Cartier London flagship on New Bond Street

Inside the new Cartier London flagship on New Bond Street.  Courtesy Photo

 

Anda Rowland, the owner of tailor Anderson & Sheppard on Old Burlington Street, off Savile Row, pointed out that landlords all over the West End are behaving “very differently, and I think that this will be remembered long into the future. There are so many empty shops and there is unlikely to be much demand in the next few years. Now would be the time for landlords to differentiate themselves and present themselves as partners rather than simply as rent collectors. We pay for leases that allow us to trade, but we cannot trade and therefore we expect landlords to recognize that.”

Diane Wehrle, insights director of Springboard, which provides data and intelligence on footfall and customer activity in physical stores, said the longer the lockdown prevails, the greater the impact will be on brick-and-mortar stores.

“For those stores that were already facing trading and cost challenges, this is very likely to signal their demise. Margins on retail products are notoriously low, particularly as discounting is now an embedded characteristic of retail, and so many retailers have little ‘meat on the bone’ that they can exploit to ensure their longevity. Brick-and-mortar fashion stores are likely to be particularly hard hit, as consumers clearly have little current need to purchase new clothing, and beyond the lockdown when restrictions begin to ease spending is likely to be curtailed due to household budget constraints resulting from salary cuts or redundancy.”

As the lockdown persists, some London landlords have been looking to help tenants — with or without breaks from the banks and other lenders.

Hugh Seaborn, chief executive officer of Cadogan, which owns 93 acres of prime commercial and residential property stretching from Sloane Square to Knightsbridge, said the company is doing “whatever it takes to ensure the future vibrancy of the area,” and wants to “safeguard everything that makes Chelsea so special. It is heartbreaking to see the potential damage to communities, and to help avoid this we continue to stand shoulder-to-shoulder with the numerous shops and restaurants that are at the very heart of the area.”

Cadogan, a family business that dates back more than 300 years, said it has offered 100 percent rent relief to more than 200 small businesses including restaurants, bars, cafés, and numerous shops in the current quarter.

It has also beefed up security measures, ensuring a range of patrols that are on duty 24 hours, seven days a week across the estate. Seaborn said that when the crisis ends, Cadogan “will look to turbo-charge the local marketing to energize activity and help drive footfall back into the neighborhood, as soon as it is safe to do so.”

The company has also made a switch from quarterly to monthly rent payments for all retailers and many other small businesses, and offered additional, “tailored” financial packages for commercial tenants on a case-by-case basis.

As reported, the property owner and developer Argent has canceled rent payments for the quarter for retail tenants at its Coal Drops Yard development while Value Retail is giving the brands across its European shopping villages a rent- and fee-free three months.

Other landlords, like Trophaeum Asset Management, which owns much of the commercial property on Albemarle Street in Mayfair, aren’t necessarily in a position to give those sorts of breaks to tenants. They say they’re the ones getting squeezed by deep-pocketed brands that are refusing to pay rent or even asking for money back.

“Commercial landlords have been left out to dry by the government,” said Matt Farrell, managing director at Trophaeum. “So far, no official mortgage holidays have been granted by commercial lenders. If you are not one of the traditional, aristocratic landlords that have owned these estates for generations and you have created an estate from scratch, with debt, there is no oxygen to fund mortgage payments.”

Walpole’s ceo Helen Brocklebank, who has been working on helping the smaller luxury brands in particular chart a course through the crisis, agreed the property scenario is complex. “There are a lot of moving parts, but the principal is that everybody in the ecosystem has to work carefully and collegially to try get through to the other side.”

She added that “very successful brands with big cash reserves” have a responsibility to settle their accounts as quickly as they can, “because the smaller brands will be struggling a lot more.”

As for the future, she believes that physical retail — at least in the luxury sector — will make a comeback. While luxury traffic online will accelerate, post-crisis, the physical store still has a role to play.

“In luxury, the transaction is the least of the relationship, in a way. The product is a souvenir of a much bigger experience. Some of the insights we’re getting suggest that people are craving the human experience, and that’s what physical retail will give. But we need to work really hard with landlords to make sure that the culture and texture of these incredible London streets, which are so important for attracting overseas business and affluent shoppers,” remain and that brands continue to do business there.

Tyrrell of the New West End Company said property transactions and developments are still pressing ahead amid the lockdown.

“There are still buildings being bought and sold in central London, because the interest rate is now so low at 0.1 percent. Big capital transactions are going on, so there’s still movement, there’s still liquidity on the capital markets side. People are planning. It’s not completely zero.”

In France, where tensions have been rising between renters ranging from small businesses to big brands and landlords, the government has been leaning on large real estate companies to soften their terms. 

Evoking the idea of solidarity — which French President Emmanuel Macron has stressed since the outset of the crisis — the government has called on banks, insurers and large property owners to take part in efforts to mitigate the economic impact of COVID-19, as it works to limit the amount of bankruptcies and keep as many people  employed as possible.

Drawing on lessons learned following the 2008 financial crisis, when business in Germany picked up faster than in France, the idea is to maintain links between employers and their workers so that activity can pick up at a faster rate when demand returns.

On Monday, when revealing the gradual easing of lockdown measures beginning May 11, Macron said he would keep an eye on banks and insurance companies to ensure they do their part in containing the economic pain of the crisis.

“We’ve spoken extensively about banks and insurers needing to make efforts — there are also large real estate companies that need to make an effort,” said finance minister Bruno Le Maire on RMC radio this week.

“Large real estate companies can and must do more to help those who cannot pay their rent today,” he added, marking a change in tone since the earlier days of the lockdown period. On March 21, just days after lockdown measures were put in place, Le Maire had applauded the “remarkable gestures of solidarity” on the part of commercial property owners, noting that suspended rents and charges constituted vital support for small companies.

Weeks of fretting over closed stores and idle merchandise, however, have weighed heavily, and retailers are asking property owners to go beyond postponing payment deadlines.

Top executives from more than a hundred brands in France, including Bonpoint, Celio, Chevignon, Galeries Lafayette, and Roger Vivier, penned a heated letter, published in the French business daily Les Echos this week, asking landlords to soften their stance.

“We, heads of businesses of all sectors, are sounding the alarm and calling on landlords to take part in the collective effort against the crisis that is ravaging our economies,” they said, noting that, collectively, they employ 2.6 million workers in more than 400,000 stores.

While the government assistance has been a “vital reserve of oxygen,” they said, survival is at stake if the serious issue of rents is not resolved. 

“Millions of euros worth of merchandise is sitting in our stores and warehouses losing value every day. We will all experience heavy losses this year,” they added. 

Property companies including Klepierre, Carmila and Unibail-Rodamco-Westfield have responded through a national association of shopping centers, known by the acronym CNCC. 

Earlier this week, the CNCC listed recommendations for further measures, including stretching out April and May rent payments for smaller businesses, without penalties, through 2022. Large international and national brands, however, must “strictly respect their long-term contractual commitments and pay their rent and charges,” the CNCC added. 

“Renters, whether small or large, each one at its scale, carry heavy investments, largely financed by bank debt and bonds that make it crucial to respect due dates of rent and charges,” said the CNCC.

In their joint letter, tenants said that the CNCC’s call for brands to pay their rent while stores remain shut is a position that illustrates “a complete absence of understanding of the depth of the crisis,” they added.

How could they pay rent that comes to 20 percent of sales? How could they pay rent while generating zero revenue? And how will they be able to pay full rent when activity will likely remain subdued, even when it resumes, the companies asked rhetorically, in their letter. 

“Unibail-Rodamco-Westfield is conscious of the great difficulties brought on by the COVID-19 crisis to brands in our commercial centers, which have been ordered to close,” said the real estate company in a statement.

The company stressed that it had postponed April and May rents that would normally be due in September, and also will allow rents to be paid by the month rather than billed for the entire quarter at the outset of the period. The company also stressed that its teams are working daily in centers that are partly open — pharmacies and grocery stores are still open — to ensure that hygiene measures are followed. 

Among responses to the crisis, the mall operator has lowered the pay of top executives by 25 percent during the lockdown period and has been bulking up its credit lines, securing an additional 1.9 billion euros last week. The company has 11 billion euros in cash on hand and undrawn credit lines.

 

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