Most commentators seem to be missing the bigger picture when commenting on House of Fraser's public admission that it is considering a CVA to stave off administration and reset its rent bill.
The focus has largely been on the specific trading challenges of a succession of UK retailers who have adopted this tactic in recent months. However, the bigger issue is that there is a fundamental structural issue with the way that retail property is being valued and we are likely close to a tipping point that may well entirely rebase retail rents and have profound implications on landlords that are not on the front foot.
Same store sales are declining by 2-3% per annum, staff costs are rising by 3% and rent levels have remained largely flat. With this maths, it won't be long before other retailers find the costs of operating stores economically unviable. For those first to feel the pinch, CVA acts as a fast mechanism for pressing reset, cutting out the gangrene and forcing the market to knock down rents on its remaining property. Each time this trick is played, landlords have a gun against their head to either agree crash rent reductions or suffer unit vacancy.
For both retailers and landlords the conditions are ripe for a mutually beneficial conversation on sustainable rent levels that will both stave off the CVA, keep more stores open and keep property occupied at reasonable yields.
Only time will tell if they are brave enough to take the plunge...
CVA’s has become a popular method of staving off administration for embattled companies in the last few months, allowing companies to offload their underperforming stores and reduce rents while avoiding administration.