In this post Tommy Leighton examines the harsh economic realities facing the capital city’s wholesale landlords and tenants as the value of their sites rises and talk of composite markets gains traction
These are tricky times for London’s wholesale markets. The three that remain since the sad but largely unheralded demise of Borough’s wholesaler community are all experiencing significant landlord:tenant unrest.
Tenants of both Western International (WIM) and New Spitalfields have serious issues with their respective landlords over rent hikes that the tenants consider a threat to their viability. Both sets of traders have seen fit to seek legal help – and at Western International, the tenants lost in court, and are now appealing a major rent rise made all the more onerous because the payments were backdated by nearly three years.
At New Covent Garden (NCGM), a decade of debate over the redevelopment of the market has already passed and there is an uneasy feeling that there are a lot more hurdles to clear yet in the next seven years of destruction and rebuild.
The London markets are not alone in this of course – there is not a market in the country that hasn’t experienced the tenant v landlord battle. I was at the World Union of Wholesale Markets conference in Lublin, Poland a couple of weeks ago and it was pretty clear from speaking to market landlords from around the world that the UK is far from alone too. Delegates from Scandinavia, Australasia and the Far East all recounted pretty similar stories to those being told in London right now and it all comes down to one thing – money.
Prime real estate
Many wholesale markets are, of course, located on land that has become prime real estate in recent years. When the three London markets mentioned above moved to their current locations, no one would have predicted how far the value of that land would increase in the ensuing 40 years (in the case of WIM and NCGM) and 20 years (in the case of New Spitalfields).
Vauxhall (NCGM) was not particularly popular even a decade ago, yet it’s becoming the next big thing on London’s south bank. The American Embassy is moving in, a new London Underground station is coming to town and huge numbers of residential and commercial properties are being built almost exclusively with non-British money. What was a dingy backwater in 1974, when NCGM vacated the old Covent Garden – now one of the country’s most successful tourist traps – is being transformed quickly into a trendy bolthole or as this article says – ‘a rich man’s playground’ just a couple of miles from the city centre.
Likewise Leyton, to where New Spitalfields decamped in 1991. Further out of the city of course, but built on land with a value way below the old site, which is now a very successful retail and restaurant hub. The area didn’t really move on significantly until the 2012 Olympics, which were based at Stratford, just two miles down the road. For a few glorious weeks, the area basked in the world’s spotlight and it has certainly become more desirable as a result. The Westfield Stratford City shopping centre helps too – and a desire to illustrate that the area is benefiting from an Olympic legacy has seen billions of pounds pumped into transformation and regeneration projects.
When Western International’s largest group of tenants made the move from Brentford to their new site in the early 1970s, they too were not aware at the time that they would eventually be surrounded by a thriving business hub. Hounslow is at the heart of one of the most accessible locations for business in the UK, situated between Heathrow airport (the sixth busiest airport in the world) and central London, with good road and public transport links. While the market degenerated – a new site was built on ground next door in the latter part of last decade –Hounslow grew in stature, attracting major blue-chip companies such as GlaxoSmithKline, IBM and Cisco Systems and TV and media giants such as Sky UK Ltd, IMG and Discovery Channel.
The sum total of the rise in prominence of all three areas is that the three fruit, veg and flower wholesale markets can no longer be assured of their status as preferred tenants of their landlords; they use a lot of land in a fairly inefficient way. They have traditionally been afforded a reasonable amount of protection through rent and service charges that are a long way below the market standards because they perform a role that is extremely important to the food supply chain in their areas.
The world has moved on, but the modus operandi of the wholesale market has not altered significantly. It’s a tough environment where the work is performed in conditions that are often harsh and there has been reluctance on the part of the majority to invest or evolve.
But decisions at national and local government level are being made to fit different finance-driven criteria sets. It is an undeniable fact that should any of these markets be moved elsewhere, for whatever reason, there’s a lot of money to be made by landlords and developers as they turn the sites into the income generating machines they would perhaps rather be overseeing.
That is not a slight on the people who work within market-oriented organisations for the landlords, it’s just the way it is. However much I would like to argue how crucial it is to leave these three markets where they are, the pure, vicious economics would suggest that unless the rents are raised significantly, the value of the sites will not be realised until they leave.
A London wholesale market review in 2007 concluded that consolidation of the sector, including the meat and fish markets, was necessary – whether that be at NCGM, at New Spitalfields or elsewhere. The composite market concept has been raised intermittently for some time, as has the food hubs for London idea. It hasn’t happened though and a big part of the reason is the constant stand-off between tenants who don’t want to move and landlords who don’t want to fork out to relocate them.
The cull at Borough Market seemed pretty brutal at the time, but the wholesalers who were any good and still had the desire to continue survived and the rest packed up. Borough Market itself has thrived as a retail destination for foodies, and while the wholesale market is missed of course, its disappearance has not made a huge dent.
It is inevitable surely, that at some time soon thoughts will turn again to the possibility of collaboration between traders who are finding it harder to remain competitive. And if the evolution of London suggests anything, it is that with every passing year, the spread of money moves a little further away from the centre – so we’re not going to be seeing any new market sites built closer to the core customer base.
I’ve written before that the first major supermarket chain that is prepared to remove itself from the battle of the Big Four and properly differentiate itself will benefit hugely from that. I’m not suggesting that the London markets can’t or shouldn’t continue as they are, or that wholesalers and catering companies cannot still operate very successfully from their existing homes. However, as the protective net gets thinner, and the climate gets tougher, there has to be some merit in exploring other options. The same argument as for the supermarkets applies, in my opinion – those who stick their necks out and opt for change could well be the companies that end up being more successful down the line.
Making that leap of faith is easier said than done though.