Surrounded by builders creating a seaside-themed course, complete with a helter-skelter, roller-coaster, Ferris wheel, photo booth and four bars, Matt Grech-Smith says: “It’s hard to believe that we are standing in what was once part of the BHS flagship store… we are really pleased that we are able to breathe new life into it.”
It’s a big coup for the building’s owner, Abu Dhabi’s royal family. However, other landlords have not been so successful in leasing space that was used by the 164-strong BHS chain before its collapse in 2016. Figures compiled for the Evening Standard by property agent Cushman & Wakefield show that more than 100 of the sites are still empty.
Now there are even more property investors on tenterhooks as they assess what a new bloodbath of retail and restaurant failures or restructures means for their buildings.
Only today, Garfunkel’s owner The Restaurant Group revealed a 3% comparable sales slump for last year and said it has hired a property agent to advise on a possible sale of its Chiquito flagship in Leicester Square.
In the past week alone, Maplin and Toys R Us have gone bust, pasta chain Prezzo has said it is axeing 94 sites, including in Barnet and Wandsworth, and Carluccio’s has hired restructurers. That is on top of recent decisions by Jamie Oliver’s restaurant empire and burger joint Byron to shut scores of restaurants as part of rescue plans.
As Ed Cooke, boss of shopping centres trade association Revo, puts it: “The environment is very complex and quite volatile right now.”
Landlords are having to examine why their tenants are struggling, whether they can help them and what they could do to fill up a plethora of empty properties.
The Maplin and Toys R Us failures are the latest in a string of High Street collapses since the demise of BHS, with experts pointing to their being unable to compete with the prices and choices available online.
But the crunch on casual dining is a newer trend, which restaurant veteran Mark Derry thinks is partly because there is too much choice in certain areas of London and other parts of the UK.
The Brasserie Blanc boss who used to run Loch Fyne Restaurants before its sale to Greene King, explains: “A lot of chains that are backed by private equity had pressure to expand dramatically, and now it’s all coming home to roost. With the oversupply, I would say have a look at High Street brands… you start to see more restaurants have insecure futures.”
Companies that invested heavily in the sector include Hutton Collins, which agreed a deal worth £100 million for Byron Burgers in 2013, global buyout firm TPG Capital, which swallowed Prezzo in a £304 million take-over in 2014, and Sun Capital Partners, which bought the Strada chain of Italian restaurants in a £37 million deal four years ago.
David Page, the chairman of Fulham Shore, parent company of pizza group Franco Manca, believes funds have not been wisely spent: “There were new and less experienced operators who didn’t know what they were doing but suddenly had loads of money thrown at them.”
He points to operators taking on expensive leases and properties that were too big or in areas where there was already plenty of competition.
The glut of supply has now become more of a headache for restaurant owners because they are also dealing with a cocktail of other, newer headwinds, says Kate Nicholls, the chief executive of trade body UKHospitality.
She warns: “The toxic mix of soaring business rates, rising regulatory costs, Brexit-fuelled food inflation and softening consumer demand are proving increasingly damaging, risking further closures, job losses and investment drying up.”
What can be done?
Nicholls thinks the Government should make a commitment to review the code of practice for leasing business premises, which would include looking at whether upward-only rent reviews should be scrapped. However, other experts believe that landlords themselves need to be more helpful to retailers and restaurants without being forced by politicians to do so.
If a company voluntary arrangement restructuring is proposed, creditors who are landlords could vote to agree to rent cuts to help keep sites open.
Brasserie Blanc’s Derry says his message to property firms is “be cautious and be sensible”.
He adds: “Don’t charge inexperienced new entrants with crazy leases that distort the market and mean rivals think they can charge tenants ludicrous similar rents.”