THE PROBLEMS caused by upward-only rent reviews imposed on retailers should be examined as part of an attempt to improve competitiveness in the retail sector, Forfás chief executive Martin Cronin said yesterday.
“We agree that we need to look at upward-only rent reviews,” Mr Cronin told the joint committee on enterprise, trade and employment. “It is our belief that the end of the property boom should be reflected in rental costs.” Green Party TD Mary White, a member of the committee, said the upward-only reviews were being imposed by “faceless pension companies” that were “bleeding retailers absolutely dry”. Ms White said there would be a “disaster in retail” if the practice of upward-only rent reviews was not abandoned in light of the recession. “There has to be some give,” she said.
A Forfás study on running costs in the Irish retail sector published in December showed that property costs were the second highest cost for retailers after labour costs, with rent and services charges accounting for as much as 32 per cent of the costs of a typical convenience store and 25-28 per cent of a department store.
According to Retail Excellence Ireland, rent increases are now the biggest contributor to business failure in the sector.
Minister for Justice Dermot Ahern warned last week that he may bring in legislation providing for downward rent reviews in the retail sector unless landlords take “a flexible and pragmatic approach” to recession.
The master of the High Court, Edmund Holohan SC, said in January the economic environment should be considered when “upward-only” clauses in rent reviews for commercial buildings are being interpreted by the courts.
Forfás presented details of its study on the retail sector, which shows that higher operating costs alone do not explain the price disparity between shops in the Republic and shops in Northern Ireland. The study was commissioned following a survey by the National Consumer Agency that found that selected branded grocery goods were up to 30 per cent more expensive in the Republic than in the North. However, Forfás found that 20-25 per cent higher operating costs in Dublin compared to Belfast should only result in a 5-6 per cent difference in the total cost base of retailers.
Committee chairman Willie Penrose said that in a free market, consumers should have the right to freely access information on retailers’ margins and profits in the Republic. Mr Cronin said it believed excess profits could be controlled through measures ensuring the competitiveness of the retail sector.
Asked if there was “any light at the end of the tunnel”, Forfás competitiveness expert Adrian Devitt said the State certainly had “some way to go in terms of cost competitiveness”.
