The late-night levy is set to have a “negative impact” on the late-night sector, according to a report from property specialist Fleurets.
The nightclub sector, which is already seeing “uncertainty”, is likely to see profitability and rental values hit if local authorities choose to introduce the extra charge for tackling crime and disorder at night.
It will build on continuing challenges for the club sector including youth unemployment, high student debt, competition from late-night bars and pre-loading at home.
The report adds: “We anticipate that rental levels will remain competitive for the nightclub sector with limited opportunity for growth other than those that may operate in prime locations.”
Fleurets notes there has been greater rental activity in the south, especially within the M25. “Elsewhere these trends are slowly starting to filter out to the regions and suggest that we may have turned a corner from the problems of the last five years.”
Tough economic conditions are leading landlords to negotiate favourable rent reviews for operators within the high-street bar and pub sector, the Fleurets report reveals.
“We have witnessed many reviews being settled at nil increases,” it states. “Without exception, rent review provisions are upward only and with falling market rents the contracted rent continues to be paid.
“As a consequence we are seeing a number of pub companies seeking to restructure leases with their landlords. In many cases this is a last-ditch attempt to obtain an affordable rent. Otherwise the tenant may enter into a form of pre-pack administration.”
Fleurets stressed the importance of tenants to be paying the correct rent for a site rather than struggling within an over-rented unit. “An over-rented unit usually results in a lack of investment resulting in a spiralling decline in turnover and profitability, thus rental value,” the report explains.
It also points to the trend where failed bar units are increasingly being taken by restaurateurs and retailers. “In addition some of the failed units have been re-occupied by other pub companies, though at significantly lower rents than previously being paid and in many circumstances for an already fitted-out bar.”
Fleurets also notes changes in the length of tied leases from pub companies. “Historically, when there was a buoyant leasehold assignment market there was generally a greater desire to take on longer leases, also on full-repairing terms.
“More recently we have seen a trend where traditional three-year tenancies have become more desirable. These tenancies are generally on internal repairing terms and quite often have a full tie.”
The economic conditions are also affecting free-to-tie leases, according to the report. “Under normal circumstances, we would expect free-of-tie rents to be higher than the equivalent tied lease given that the tenant has the ability to purchase products direct from their own suppliers and thus negotiate bigger discounts than would normally be available under the tied lease arrangement.
“However, when the pub becomes vacant, landlords often have no proof of what turnover and profits the business previously enjoyed – unlike a tied lease where the barrelage provides basic guidance. It is therefore often difficult for landlords to re-let premises at rents as high as they previously were.”
Overall, Fleurets has seen a fall in rental levels because of the UK and global economic conditions, with rents ultimately being determined by ability to pay.
“Whilst there are positive signs of improvement there is still some uncertainty, particularly given the continuing austerity measures,” the report concludes. “Therefore, whilst we anticipate some movement, it is likely that any significant levels of growth within the economy remain some years ahead.”
However, Fleurets anticipates some increased activity over the next 12 months. “Institutional landlords will be looking for growth given the lack of movement in rents over the past five years.
“In addition, we expect that the pubcos will continue to work within the new Code of Practice guidelines. This is likely to result in rents throughout the country being agreed at affordable levels.”
Picture: Brown’s in Bath where Fleurets acted for the landlord.
