23 February 2015

Richard Negus – rent per square foot has doubled in suburban London locations

Richard Negus, a partner at London property agent AG&G, has reported that rent in some traditionally cheaper London suburbs has doubled as operators, struggling to meet central London prices, seek expansion opportunities. Negus, writing for the Propel Quarterly magazine, also reported that 20 bottom-end Strada sites, sold as part of last year’s Tragus restructuring, sold for an average premium of £130,000. He stated: “The shortage of supply in London, high premium values/rents and strong competition are driving some branded restaurateurs to look to suburban locations and out-of-town leisure schemes for expansion opportunities where competition is weaker and rents lower. However, where rents were once £20 to £25 per square foot, restaurateurs are being forced to pay rents of £35 to £40 per sq ft in some locations, which ultimately dilutes profits for existing businesses, not only through the increased competition, but as a result of increasing rental values and therefore increasing costs to businesses. It is all very well if restaurants continue to trade profitably. However, a very serious risk with restaurant properties are the length of leases, often for terms of 20 and 25 years, which is considerably longer than all other commercial property (retail, industrial or offices) and is due to the length of time required by tenants to depreciate their substantial fit-out costs compared to retail and office users. If restaurants do not trade successfully then the leases with “upward only reviews” can become a burden rather than an asset.”

Of the 20 Strada sales, he said: “The restaurants were sold individually to a variety of branded operators and some private restaurateurs. Their locations were mainly in provincial towns across the UK and in some London suburbs. The restaurants were on the whole “tired” and mostly smaller than the 3,500 sq ft/100 covers desired by the multiple restaurateurs. No trading information was disclosed to prospective purchasers and the premiums represented what the buyers were prepared to pay to secure the sites (key money) – none of the restaurants would continue to trade under the Strada name. The average premium paid for each restaurant was around £130,000, with the highest premiums being achieved in the London locations. An estimated £250,000 to £450,000 was spent by each purchaser refurbishing their restaurant.”

AG&G are chartered surveyors specialising in the licensed leisure industry, with the skill and experience needed to value, assess or promote a property not simply as bricks and mortar but as a business. If it involves the price of a licensed premises, its profitability, rental value, investment prospects or value in a dispute, AG&G can help.

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