The organisation representing the UK insolvency industry has warned that more retailers could soon be facing administration. The gloomy forecast comes as advance rents become due on commercial properties – a date known as rent quarter day.
Speaking on behalf of trade body R3, Lee Manning said; “Rent quarter day is typically the time when struggling retailers go into administration. Retailers are committed to meeting three months of obligations on their stores, while they often have pressure on cashflow at the end of the month from the payroll and maybe a VAT bill too.”
He went on to caution that creditors would rather see retailers enter administration when there is stock in the commercial property that can be sold to meet financial obligations. This explains the high level of insolvencies over the Christmas period.
Likewise, the end of June is another risky period for retailers who may have unsold summer stock that can quickly be converted into cash. “There are at least a couple of retailers contemplating administration that you hear about,” Mr Manning added.
The warning follows research conducted by R3 showing that 26 per cent of retailers have been identified as at risk of failing over in the next 12 months. Insolvency expert Mike Jervis cites commercial property expansion as one of the factors adding to the difficulties faced by the retail sector.
He said; “Many retailers are still not being strategic in terms of how much space they’ll need and we often see over expansion lead to distress. For those that have already taken too many units they need to be realistic and plan ahead to liaise with their landlords as early as possible.”
As rent quarter day threatens the future of more retailers, research from commercial property agent Colliers International shows that shop rents have remained static or have fallen in 350 out of 418 town centres in the year up to the beginning of June.
However this should be considered against the background of research from Investment Property Databank (IPD) which reveals that retail rental values have only fallen by 1.1 per cent over the past 5 years despite the recession.
The figures also show that rents in Greater London have actually risen by an average of 6.7 per cent while rental values in Central London have soared by 9 per cent over the same period.
If rent quarter day causes the failure of any more retailers they will join high street names like Clinton Cards, Game and Peacocks who have all gone into administration in recent months.