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Increasing Rent Puts Pressure On London Restaurants

Research by leisure property and lease restructuring specialist, Cedar Dean Group – covering around 600 restaurants in the city – has revealed the startling prospect that restaurants will have to adapt or die if rents and rates continue as forecast.

The report, released this morning, shows after the 2018 rates rise, 90% consider their costs will be unmanageable and 84% said they would have to either close down or move out of Central London.

The research comes as the city’s restauranteurs face the most challenging business environment in recent history.  Prime central London has seen colossal rent hikes over the last few years, far outpacing those seen in the rest of the capital.

Perhaps most worryingly, this means restaurateurs are spending an average of 21% of turnover on rents, already more than CDG’s forecast for 2021 and up from 16% last year.

Historically, the maximum percentage of turnover spent on rent should be 12%. But this has jumped by 70% over the past five years and 140% over the past decade.

Roger Payne, CEO, 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 under 12% of turnover and as restaurants have needed to expand, landlords have taken advantage and rents have crept up because of demand.”

Tenant security is also diminishing, making it harder for restaurateurs to hold-on to their coveted central locations. Landlords are bypassing the Landlord & Tenant Act 1954 which gives tenants the right to have a renewable lease on the same terms as their original lease.  But more than a quarter of operators said their leases now don’t fall under the Act.

Leonid Shutov, Bob Bob Ricard, said: “Leases within the act shouldn’t be optional or at the discretion of the landlord. The average leaseholder today has no protection whatsoever; they can’t rely on the Act. If landlords are unwilling to offer a lease within the Act, they have no choice. Restaurants are small organisations; many of them are one-off independents. It is much more difficult for them to have the inside knowledge to find this information and not having a transparent system sets them up for failure.”

CDG predicts the situation will 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 cheaper, regional cities.

The report presents suggestions to tackle the situation, including: calling on landlords to subscribe to an “affordability statement”. In the case of operator rents and rates exceeding 25% of turnover, landlords could provide a rent concession during which a lease could not be assigned until arrears were made up.

David Abramson, CEO 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.

“Rent and rates are coming in at a circa 30% of turnover which, at the double industry standard, is not sustainable. We turned to the Westminster Property Association for help, suggesting they consider their Corporate Social Responsibility in assisting to lobby landlords for affordable rents. We recommended urging landlords to take turnover into account when giving new lease or executing rent reviews – rather a pound per square foot 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 last few months has shown is that high rent and rates are not just affecting businesses that need to improve but also operators that invest substantial sums in the capital city including the likes of Ripley’s, Believe it or Not, Jamie’s Italian and Byron who 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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