Tenants trapped in high-rent properties seek radical remedies.
Low inflation has changed the rules of the game for most businesses. It took a long time for the effect of these changes to be understood but now the benefits of low inflation - in terms of cost stability - are all about us. Although not quite everywhere. It's partly because of low inflation that many businesses occupying leased accommodation are, in the words of one property expert, 'stuck with overrenting'. In the past 'inflation took us off the hook', but no longer. So how serious is this problem, and what, if anything, can be done about it?' 'The effect has been far more devastating than in any previous downturn,' argues Russell Schiller, head of investment at Hillier Parker May & Rowden, to the extent that some firms have been forced to cease trading. The problems are particularly acute in the retail and office sectors, also in parts of the industrial market, such as warehousing, which involve standardised units that are readily tradeable. (Big manufacturers usually own their factories, since these tend to be specific to requirements.) Where the tenant is, say, 10 years into a 25-year institutional lease, his rent may well be double what he would pay under a new lease, and he has no prospect of reducing this cost for another 15 years. If he is a retailer (or an estate agent, say), business may also be a lot slower than he would have predicted when he signed-up in the mid-1980s.