As the impact of CV19 continues to create significant challenges for the retail and leisure industry, new research from Savills has found that so far this year 5,318 retail and leisure units have been through an insolvency procedure, spread across 138 brands and 85 holding companies, in comparison with 4,017 units in 2019 and 4,283 in 2018.
However, Savills reports that of those insolvent units in 2020, 48% have seen no reduction in the rent being paid to the landlord, compared to 42% in 2019 and 46% in 2018. Furthermore, this year less than a third (29%) of units have sought rent reductions, and just 22% of units have closed, or been earmarked for closure so far.
In contrast, in 2019 45% of insolvent units closed, rising to 46% in 2018, suggesting that this year an increasing number of retailers are working with landlords to find alternative solutions such as paying rents monthly, or switching to turnover based leases. In fact, the research has found that 33% of retailers undergoing a CVA in 2020 have requested some form of turnover rents compared with 0% in previous years, highlighting the growth of this form of lease structure.
The research from Savills has also found that since January 2018, only 4% of brands that have been through a CVA and/or administration procedure have subsequently been liquidated, and, in the same period, only 7% of brands went straight into liquidation without entering a CVA or administration. This means that the remaining 89% of brands that have undertaken an insolvency procedure have survived and remain trading to the current day.
Stuart Moncur, head of national retail at Savills, said: “As CV19 continues to create significant challenges for the retail sector, we have seen increased demand for alternative leasing models, particularly from retailers involved in insolvency procedures in order to secure the viability of the brand for the future. The number of brands undertaking a CVA or administration has unsurprisingly risen this year, but, more positively, the drop in the percentage of store closures is likely a result of the increasing adoption of more flexible lease terms, which is becoming more prominent across the whole industry as the future of leasing models begins to shift.”
Sam Arrowsmith, associate director in the Savills research team, added: “With the news of CVAs and administrations constantly dominating business headlines, you would be forgiven for thinking that brands are shutting up shop and disappearing every day. However, what we’ve found is that the majority, 89%, have found a way to continue trading over the past three years, whether that be through corporate restructuring or agreeing new lease terms which is a significant silver lining for the sector.”