Shopkeepers Fear the End of the Old Rental System

19/12/2014 – Bloomberg

Many shopkeepers which have been present in the most-visited streets of Madrid like Gran Via since always, fear the night of the New Year as with the twelfth stroke the new regulation introduced under dictatorship of General Francisco Franco will come down to history, causing a real stir on the CRE rental market.

The law is going to force the shops that are unable to pay new rents (raised from 5.000 to 12.000 euros monthly like in case of jazz club Café Central in Madrid) to shut down or relocate to cheaper premises, freeing up highly demanded retail space.

As Madrid-based director of high street properties for JLL, Angeles Perez, said, the move is a pure business as prime asset tenants paying market prices cannot operate next to others who pay almost nothing.

Spanish trade union UPTA said about 65,000 firms may be affected by the law and 190,000 people may lose their work positions.

Introduced in 1964 under the rule of Franco, the 1964 law was subsequently amended and extended in 1985 and later in 1994. This regulation aimed at providing social housing and affordable premises for the hunger-driven immigration flows into big cities.

Fair Rents

In 2015, the moratorium on retail rental contracts signed before 5th May 1985 will disappear. Insuring low rents, the law have not passed the time test.

Positive Impact

Many shop-owners fear they will not manage to pay the new amounts. However, the regulation may have a positive effect on prime assets in big cities by liberating utterly demanded retail units.

More spacious stores give jobs and attract tourists who then spend money in nearby bars and restaurants, boosting general economy, assured Perez.

As per data from JLL, Luis Vuitton and H&M have had considerable shares in the total of 330 million euros spent on retail space in high streets of Spain so far.

In the entirety of 204, total investment in hotels is likely to reach 450 million euros.


Original story: Bloomberg (by Sharon Smyth)

Summary: AURA REE