Investing in the High Street is a tricky business

by Cheetham and Mortimer

A deal to purchase a town centre retail parade aborted last week. It was supposed to be a ”dead cert”. It was cheap by historic standards – just 12.5% of the investment value traded 5 years ago. The reasons for failure were multiple but they bring into sharp focus the challenges that the High Street presently faces.

Take dilapidations. Against the historic investment value, they would have amounted to 1.75% of the figure – perfectly acceptable. Now they equate to almost 15% of the investment value. In a world where investors are uncertain whether the tenant will even pay their rent, this represents a significant financial risk.

As might be expected, the overwhelming risk related to rent and occupational costs. Take one example. A lease expiry to a national multiple retailer was imminent. The tenant wants to remain (and the owner needs them to stay). The tenant has offered a rent that equates to 12.5% of the passing rent. Undoubtedly, there will be a negotiation but it sets the tone for these negotiations. There is a vacant unit. Suddenly, at these new levels, the rental income from one unit is insufficient to cover the cost of business rates on the vacant unit. If the owner faces more voids, it will soon become a zero sum game – where’s the incentive to invest? The eye catching yield is a mirage. Traditional theory dictates that the multi let nature of the investment dissipates risk – this no longer holds true.

In the short term, and despite ongoing price adjustment, the case for investing in our High Streets is far from compelling. For a start, occupiers will be forced to trade from premises where their physical condition is declining – this is not going to help ongoing initiatives to promote our town centres.

The calls for an urgent change in the Rating system will no doubt continue – but perhaps that might be the wrong thing? Are we nearly through the worse? Take the tenant that wants to renew. We were targeting a new rent that represents 25% of the passing rent. If this filters through into the Rateable Value, suddenly, the occupational costs fall to just 30% of their current level. Is this sufficient to make the High Street store profitable again? With the next Business Rates revaluation scheduled for 2022, and providing the inequitable rules surrounding tapered relief can be amended, perhaps the medium term prognosis is a little brighter. The same might not be true for those large distribution sheds that are favored by online retailers (and institutional investors). Their occupational costs are set to become a whole lot more expensive. Perhaps we should have faith that market forces will prevail? For those investors brave enough to dabble on the High Street, the need for careful stock selection will be paramount – but amongst all the rubble, there will be some gems.


Written by Robert Millington

Partner. Investment

July 2021


Former Topshop – Prime Retail Premises TO LET in the Isle of Man

by Cheetham and Mortimer

A prominent building occupying a 100% prime trading position on pedestrianised Strand Street in the islands capital, Douglas.

The property comprises a modern purpose built retail unit designed to provide sales accommodation and staff facilities over ground, first and second floors.

Other retailers within the immediate vicinity include Marks and Spencer, Boots, Next, New Look, River Island, JD Sports, Monsoon and TK Maxx.

For all enquiries please contact Warwick at C&M


Every dog has it’s day – well that’s the saying.

by Cheetham and Mortimer

Yesterday’s canine champion is called “Ocado”. According to them, and as a consequence of the pandemic, “the grocery landscape is changing for good”. Let’s face it – the grocery business has been one of the big winners of the pandemic. If you cannot grab market share and make money (or in Ocados case – reduce your losses from £214.5m to £44m) in this environment then you have a problem.

However, once this pandemic finally subsides, there is a huge wall of money waiting to buy a new pair of dancin’ pants, to meet family and friends again, to feast and get drunk. Humans need social interaction.

Once the restaurants and bars reopen, that expenditure will be directed away from the grocers. Once the offices reopen, home working will lose its appeal. Once we start to build back better, sustainability and the environment will top the bill. Once we return to our town centres, we will bemoan the number of vacant units and the lack of choice. What does that mean for home deliveries? Will we react again? There is no doubt that the pandemic has accelerated the digitalisation of our lives …. but these are extraordinary times. All landscapes are evolving and change can be expected…..even for our top dog.

By Robert Millington


Roadside retail – it’s all about convenience aligned to a digital world

by Cheetham and Mortimer

The move to online shopping has been well documented and the pandemic has only accelerated this change in our habits. Similarly the surge in online home takeaway food delivery operators and their associated apps during this period appears to signal a permanent change in the way we will get our fast food in the future.

However, amidst this on line activity , we have witnessed considerable interest from retailers and leisure operators seeking a physical presence in the shape of bricks and mortar to ensure that they can provide the supply and logistics required to compliment the on line presence. As an example, retailers are now considering high profile roadside sites, such as failed restaurant units, or smaller retail showroom units, which can be utilised for click and collect purposes. The logic behind this is straightforward – there is a considerable cost saving, both in terms of staffing and rent/rates and in many cases it is more convenient for customers as the majority of these units have free car parking adjacent to the front door, rather than the often excessive rates charged in town centres and some retail parks. It gives the retailers the opportunity to have their branding on display and still have representation in a town, whilst at the same time not having the lease liability of a unit which is now considerably larger than their operational requirements. An example of this is at Portwood court, Stockport where C&M let the former Maplin unit to Direct Flooring – an online flooring retailer who  still required a physical presence  to showcase their offer and grow their business. At the same development, the former Carphone Warehouse attracted interest from a national fashion retailer who was considering relocating from the adjacent retail park and utilising the unit for click and collect only.

Similarly drive thru restaurant operators have become one of the most hotly contested sectors of the market as food to go businesses battle it out for prominent roadside buildings or sites, away from deserted shopping and leisure centres. The obvious attraction is the lack of physical contact and with many town centre takeaways closed, queues have stretched up to 90 minutes at some stores. With fewer staff required and typically lower rents than city centre sites, together with free car parking ,they are an attractive prospect for businesses. These outlets also provide the supply required for the burgeoning online presence.

The move online and for convenience is here to stay, but landlords and operators have to be proactive in recognising the potential opportunities that comes with it.

By Barrie Cochrane


Who made these failing retailers take long leases???

by Cheetham and Mortimer

Sir Ian Cheshire – a former chairman of Debenhams – is quoted on the BBC website that Debenhams was “caught in a straitjacket” with too many High Street outlets on long leases.

It is worth pointing out that in 2005, Debenhams entered into a sale & leaseback transaction on 23 stores with British Land. They committed to lease terms of 30 and 35 years and with annual compound increases in the rent. Debenhams happily pocketed £495,000,000. (Source – Property Week)

I seem to recall that House of Fraser pulled a similar stunt. They befell a similar fate. These retailers have often been instrumental in their own downfall. It’s not the fault of property owners…although they often seem to be taking the hit through the inequitable CVA process.


Councils will need access to cheap Prudential Borrowing if they are to help struggling town centres – but they need to use it wisely.

by Cheetham and Mortimer

The announcement in yesterday’s Spending Review that local authorities will no longer be able to access cheap debt from the Public Works Loans Board for yield arbitrage purposes has to be welcome news – if for no other reason than financial stability. Over a three year period from 2016, it is reported that local authorities spent a staggering £6.6bn on commercial property with almost 40% being outside of their boundary. For those who chose to “invest” (poor choice of terminology) in the retail sector, the outcome could prove to be a disaster for their finances. The fact that Croydon council has effectively declared itself bankrupt after taking loans of £545m to buy a shopping centre should serve as a warning.

It is estimated that over this period, a quarter of the investment activity was directed to the retail sector – and particularly shopping centres. Within our region, top of my list of atrocious investment purchases has to be Shropshire Councils purchase of the Darwin and Pride Hill Shopping Centres – yes – not one, but two shopping centres. In fairness, these schemes had been touted as a redevelopment play, but in my mind if the combined development experience of Shearer Property and the financial clout of Standard Life could not pull it off, why did the council think they could do otherwise?

Now, I am aware that not all purchases will have been made with Prudential borrowing. I am also in favor of councils being able to access cheap money if it genuinely acts as a catalyst for regeneration (the clue is in the name – “public works”). Everyone knows that the viability of development is challenged from the outset when there has to be a destruction of value to create value. Unfortunately, many councils make this equation even more difficult by paying too much for their shopping centres. Furthermore, with a recent survey by Korn Ferry predicting that over a third of retail bosses are expecting to reduce the size of their store portfolio within the next 12 months, an increasing queue of retail owners seeking to enhance the value of their equity stake through the use of CVA’s and shopping centres not being conducive to the surge in demand for click and collect facilities, the short term prognosis for value is bleak.

Looking forward, many town centres will continue to decline. One way or another, it will require local authorities to take a leading role if the decline is to be arrested. If you are a local authority contemplating an intervention into the retail market, never before has it been so important to obtain impartial professional advice before committing to a purchase (and a debt). Timing is everything. Knowledge is key.