Retail property rents rising despite retailer failures

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Despite the collapse of many retail chains, property companies report an increase in rental values, but the accuracy of the data has been questioned.

Many large retailers, including Toys R Us, Maplin and Poundworld have gone into liquidation. Others like Mothercare, Marks and Spencer and Homebase are closing several of their stores. In a difficult retail market, you would expect retail property rents to fall, but instead, they appear to have increased.

For the first quarter of 2018, according to the MSCI index, rents rose by 0.9% compared to 2017. Intu owns several shopping centres and have raised their rents by an average of 1%. Property agents CBRE said that rents for shopping centres they are involved with rose by 1.4% in the first quarter of 2018.

These figures are “headline rents”, the figure quoted in lease contracts. Incentives such as rent-free periods and cash rebates when a store opens are not included in the figures. Rent-free periods can be between six months and one year and can reduce by up to one fifth the total overall rent received on property over the lifetime of a five-year lease.

When comparing rent levels in 2018 to 2017, comparisons may not be for exactly like-for-like property, and this can also affect the accuracy of these comparisons.

Property investors can use commercial mortgages to buy retail property, but before purchasing they need to research expected rental levels and incentives to make sure that they can make a profit.

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