Ireland’s largest retail industry trade body has expressed its support of the Government’s plans to abolish upward only rent review clauses. Retail Excellence Ireland (REI ) claims more than 40,000 jobs are at risk in the retail sector unless the system is removed. Currently, rent prices can only increase or remain the same under review, regardless of decreases in market rates. Since rental retail rates increased by 240% between 2000 and 2007, compared to a 30% increment in consumer prices, REI claims businesses are not paying a fair market rate. As it stands, Ireland is one of just a handful of countries who still employ the system, with the remaining jurisdictions employing a market-based approach.
The trade body claims the system is flawed and jobs are at risk unless the Government takes action: “The system for deciding rent increases is flawed. The rent review and arbitration system favours hyper-inflated rent increases, and in many cases these increases are based on manipulated evidence. The property market has crashed but these high rents have not gone down, and are now costing jobs every day.
“In the past 40 months the Irish retail indicatory has lost over 40,000 jobs as struggling shops close their doors for good; 40,000 more retail jobs are at risk unless the Government intervenes on the matter. These jobs can be saved, and a further 30,00 jobs created, if immediate action is taken. Rents in Ireland as a percentage of sales are twice the global average. Rents will come down one way or the other, either through the proposed Government legislation, or through business failure and job losses. We support the former and not the latter. Retailers want to pay a fair market rent, so they can pass on fair prices, and maintain staff and service levels to the consumer.”
It is felt that the abolition of the system would result in lower prices for consumers, significant job stability and creation, and the re-attainment of overall national competitiveness. REI is forthright in its views over those it feels are responsible and NAMA, the Government, and individual landholders have all come in for stern criticism:
“NAMA was established to deliver liquidity to the banking system, thus allowing commerce to function better. NAMA wants to maintain upward only rents, but by supporting upward only rents it is causing job losses and business failure, and will into the medium term undermine asset yields because more businesses will fail and more jobs will be lost.
“Irish pension funds invest three per cent of total portfolio in Irish commercial property. The abolition of upward only rents will have a minimal impact on pension fund return. Landlords who have worked with their tenants by reducing rents have nothing to fear from this legislation. They have allowed a market rent to pertain. The legislation will simply ensure that all landlords act responsibly, not just a progressive minority. In a survey of 3,400 retail stores 68 per cent of requests to landlords for rent reductions were declined. Landlords are hiding behind distorted boom time rents.
“There has been no inward investment in the commercial property market in the past eight years. By dealing with the upward only rent distortion now, a very clear signal will be sent to investors that Ireland has a functioning and transparent commercial property market. Additionally, Ireland will become more appealing to international retail and services organisations looking to trade here. As the country’s largest tenant, it is in the Government’s own interest to abolish upward only rents.”
