Commercial Rents – Post Covid-19

[Jim2020]

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Hi All,

First time post – Rents appear the killer for so many small hospitality businesses. We want to buy our first cafe. wine/cocktail bar in Collingwood/Fitzroy/Richmond but nearly all the business we look at major contributor in owners ‘getting out’ is very high rents gobbling their meagre profits. many were barely profitable before C-19, and now so many are getting out. The challenge for a potential new owner is still the rent. So, my question is, yes, we can negotiate rent relief on the takeover, and yes we can negotiate further months of reduction, but its the ongoing that still needs to be negotiated down.

With so many of this business are potentially selling up and out during COVID, what do you believe average commercial rents will have to reduce by in a post-C-19 world?

[arrowwise]

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That’s a very loaded question. The simple answer would be whatever the market will reasonably and competitively sustain on both the tenant and landlord side. In the Post-C-19 world reliable tenants in the hardest hit areas are going to be more valuable than ever, so very attractive terms and rents will need to reflect this new market. Too many forces at play to predict this stuff, but won’t be a switch on and back to normal situation.

[Jim2020]

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As i’m new to this I would really appreciate some advice or commentary on negotiating rents down, fixed moving forward. One idea I had was to offer a value based model, where the more turnover I can generate the more rent I pay with a cap. e.g sub $10k pw turnover I pay X, 12.5K I pay a % more, $15kpw a % more and $20k capped at y?

[bb1]

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Jim2020, post: 269504, member: 116931 wrote:

With so many of this business are potentially selling up and out during COVID, what do you believe average commercial rents will have to reduce by in a post-C-19 world?

How long is a piece of string

[bb1]

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Jim2020, post: 269507, member: 116931 wrote:

As i’m new to this I would really appreciate some advice or commentary on negotiating rents down, fixed moving forward. One idea I had was to offer a value based model, where the more turnover I can generate the more rent I pay with a cap. e.g sub $10k pw turnover I pay X, 12.5K I pay a % more, $15kpw a % more and $20k capped at y?

No landlord will take that as a viable offer, first they rely on your honesty of turnover, and we all know that the books can be made to look which ever way you want by a creative accountant (sorry [USER=5318]@JamesMillar[/USER] ).

But also everyone knows that the café industry is a cash cow, so all the benefits are on the owners side and not the landlord.

[James Millar]

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Hey Jim. Just FYI you have probably chosen the highest risk, lowest return business model of all available. Hospitality in that space In those areas has already been saturated by high quality operators about 10 times over. Someone comes to me and says I’m thinking of starting a cafe / win bar etc etc in those areas I say STOP and spend a lot of time and money analysing objectively before proceeding (or better yet don’t spend any money and look at something else unique). The vast majority fail to provide any respectable return likely below minimum wage for owners plus risk and stress.

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900

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