Restaurant, bar and leisure operators in London have hit breaking point over rent levels, according to new research, with 84% stating that rents and rates could force them to close down or move out of the capital.
A report by leisure property specialist Cedar Dean Group found that 90% of operators were concerned that costs would become “unsustainable” if rents and rates continued to rise as forecasted.
The research, which surveyed 600 restaurants including Bob Ricard and ShakaZulu, showed that restaurants were spending an average of 21% of their turnover on rent, up from 16% last year.
The group said that the maximum percentage of turnover spent on rent should be 12%.
It predicted the situation would lead to more remote central kitchens, an increase in reverse premiums as landlords struggle to shift empty space, and an exodus of restaurants from central London in favour of fringe locations or even regional cities, where rents are cheaper.
Recommendations
As a result of the report’s findings, the group has recommended that landlords, the government and leisure industry leaders put in place an “affordability statement” to support restaurateurs.
Additionally, it suggests that where operator rents and rates exceed 25% of turnover, landlords could provide a rent concession during which a lease could not be assigned until arrears were made up.
Roger Payne, chief executive of Camden Dining Group, said: “A number of restaurants are in serious trouble at the moment, predominately related to the rents and not assisted by legislation.
“Historically, the most successful rents have been at less than 12% of turnover. As restaurants have needed to expand, landlords have taken advantage and rents have crept up because of demand.”
The report also criticised landlords for “bypassing” the Landlord & Tenant Act 1954, which gives tenants the right to have a renewable lease on the same terms as their original lease. More than a quarter of operators said their leases now did not fall under the Act, according to the report.
A cliff edge
David Abramson, chief executive of Cedar Dean Group, said: “We always knew that the upward-only rent review system created a cliff edge ending for operators but these latest statistics are much worse than what we saw a year ago.
“We turned to the Westminster Property Association for help, suggesting it consider its corporate social responsibility by lobbying landlords for affordable rents. We recommended urging landlords to take turnover into account when agreeing new leases or executing rent reviews – rather charging rent on a pound per sq ft basis.
“The response from the WPA was that such an affordability statement could reduce footfall and undermine successful operators – something we fundamentally disagree with.
“One thing the past few months have shown is that high rents and rates are affecting not only businesses that need to improve but also operators that invest substantial sums in the capital, including the likes of Ripley’s Believe it or Not, Jamie’s Italian and Byron, which have all suffered closures.
“It is plain and simple: the numbers just don’t add up. Without intervention, the restaurants will be forced to close their doors and by the time landlords wake up, it will be too late.”
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