McDonald's seeks 50% rent reduction

THE FAST-FOOD chain McDonald’s is looking for a 50 per cent reduction on the rent of its main Dublin restaurant on Grafton Street as a condition of a new lease due to be signed shortly. The company is currently paying a rent of €1.15 million per annum.

The substantial concession being sought is likely to be resisted by the owners of the building, the Royal London mutual life and pensions fund, which will argue that the scarcity value of having a round-the-clock business premises on the city’s top high street must be taken into account when setting the new rent.

The landlord is expected to demand that the licence to sell fast food 24 hours a day should equate to a premium of at least 20 per cent on the market rent, while the sheer size of the building – it is one of the finest on the street – should add a further 10 per cent to the overall rental calculation. If these considerations are accepted in discussions planned between the two sides – or in subsequent arbitration proceedings – then McDonald’s could possibly end up with a rent reduction of no more than 20 per cent.

Making its case for a substantial cut in the rent, McDonald’s will obviously cite a Dublin Circuit Court ruling early last year which forced the landlord of the Burger King fast food restaurant at 4/5 Grafton Street to reduce the rent by 53 per cent – from €436,750 to €205,250. Apart from the fact that these premises have a retail area of only 120.7sq m (1,300sq ft) on two levels, the court did not seem to throw much weight on the fact that new fast food outlets are no longer permitted under the Grafton Street conservation strategy.

McDonald’s is unlikely to draw attention to another 2007 rent review on the street which saw Treasury Holdings get a 90 per cent increase to €1.44 million on the better-known Bewley’s Café which trades on three floors.

When McDonald’s 35-year lease of 9-11 Grafton Street ran out at the end of last year, Royal London (not to mention Dublin city planners) were obviously hoping that the company might vacate the building in the light of the inflated rent. However, the food chain was not for moving out of what was its first Irish outlet. The decision to stay in the 1,858 sq m (20,000 sq ft) building put an end to ambitious plans to convert the former Hospital Sweepstake headquarters into a major new store with up to six levels of shopping facilities.

Rent levels on Grafton Street have fallen in recent years as a consequence of the recession and the fall-off in consumer spending. There is now a two-tier market, with the largest stores attracting – and retaining – higher rents than in the many smaller shops. Zone A rents generally have slipped from €8,611 per sq m (€800 per sq ft) to between €3,299 and €4,305 per sq m (€300 to €400 per sq ft), partially because of the decision by some landlords to reduce rents in the face of more difficult trading conditions.

CBRE is advising Royal London on the McDonald’s review, while GVA Donal Ó Buachalla is representing the tenant.