A Wear and Burger King are expected to look for rent reductions after their leases run out - a move which could lead to lower rents on new lettings, writes JACK FAGAN:

THE LONG-RUNNING controversy over high rents on Dublin’s Grafton Street will take a surprising turn shortly when leases on two buildings on the street come to an end – and traders A Wear and Burger King have the option of looking for significant reductions in their rents. If they succeed, it could have a knock-on effect on other new lettings on the street.

Although rents on the city’s principal high street are nominally down by at least 30 per cent on the peak levels of 2008, most traders there cannot avail of lower rents because they are tied into upwards-only rent clauses in their leases.

The Government’s promise to ban these automatic rent increases – introduced in the Oireachtas before the summer break but left in abeyance since then – will only affect new leases or instances where leases are running out, such as in the case of A Wear and Burger King.

A Wear’s 20-year lease formally ended on August 31st and, because it has a right of renewal, it is no longer tied to the upwards-only condition and can now look for a reduction on the old rent of €1.25 million. The building has one of the best floor plates on the street with 1,761sq m (19,000sq ft), including 278sq m (3,000sq ft) on the ground floor and two further retail levels with about 650sq m (7,000sq ft).

The Burger King food outlet is a much smaller building with three trading floors, including a street level of 74sq m (800sq ft), a basement of 67sq m (723sq ft) and a first floor of 114sq m (1,237sq ft).

The rent of €436,500 is considered on the high side for the building and the expectation is that the OKR Group, which operates the Burger King franchise in Ireland, may opt to go to court if the landlord does not volunteer to reduce the rent.

Both the A Wear and the Burger King buildings are owned by Aviva Investors, one of a number of institutions with a tight hold on the street. About 10 stores – including Barratts Shoes, Vera Moda, Richard Alan and Zerep – have had their rents reduced because of the fall off in business since the early part of this year. The slippage has been accentuated since Dublin City Council introduced a ban on cars at College Green during the morning and evening rush hours.

Retail agents handling new lettings and rent negotiations are reporting a sharp divergence in rent levels between the bigger stores and smaller ones. In some cases the larger units are renting at over 20 per cent more per square metre than the smaller shops.

Traders expecting rent reductions will be surprised and disappointed by this week’s news that the owner of the Monsoon fashion store has secured a 10 per cent rent increase backdated to last March.

The landlord had originally sought an increase of over 50 per cent on the current rent of €750,000 but settled on the lower figure just as it was to go to arbitration.

The settlement equates to a Zone A rent of €780 per sq m (€72.5 per sq ft), a long way behind the €1,200 per sq m (€111.5 per sq ft) set for the recently opened Tommy Hilfiger next to Marks & Spencer.

The converted former AIB bank branch, occupied by Monsoon, has 371sq m (2,000sq ft) on the ground and first floors at the junction of Grafton and Harry Street.

Another interesting rent review pending is the small Bus Stop shop at the top of Grafton Street. It has a ground floor area of only 40sq m (438sq ft) and a basement of 41sq m (446sq ft). The landlord is looking for an increase on the rent of €225,000 and, with no agreement in sight, the issue is shortly to go to arbitration.

Though leases on the street have sold in the past for up to €750,000, there is now little or no demand for buildings with limited retail space. Five such shops are currently vacant on the street and three more have been let on a short term basis for the Christmas season.

Earlier this summer shoe retailer John Corcoran offered a reverse premium of at least €300,000 to any trader prepared to take over his €450,000-a-year Korkys shoe shop but there were no takers.

Grafton Street’s reputation for excessive rents has been damaging, according to letting agents, as has the incursion of cheap gift outlets, mobile phone shops, takeaway cafés and convenience stores.

On the positive side, Larry Brennan of Savills says that the more realistic rents now emerging should open up the street to a wider range of traders and international brands.

With no immediate sign of the upwards-only rent clauses being dropped from leases, the Grafton Street Tenants Association has sought the help of the European Parliament to end this “anti-competitive and anti-consumer” measure which applies “only in Ireland and the UK”.