Late-night revellers and publicans may not the be the only ones ruing the latest restrictions aimed at stemming the spread of the coronavirus. A shift back to working from home and orders to close pubs and restaurants by 10pm will not help refill the coffers of landlords set to miss out on £4.5bn in rent between mid-March and the end of the year.
“The restrictions imposed this week represent a step back in economic recovery and will negatively affect businesses in most sectors. While we feel the restrictions are fairly minor, we do think they will cause a reduction in the amount of rent we are able to collect,” says Mark Jarrett, head of property management at Colliers International.
With the government yet to set out how landlords and commercial tenants should share the pain of lost income while socialising and shopping are cut back, the two sides are still slugging it out, store by store.
On Tuesday we will get a glimpse of how the fight is progressing on the 29 September “quarter day”, when shop and restaurant landlords traditionally collect one of four chunks of yearly rent.
While many retailers and hospitality businesses have now moved to monthly payments in order to manage cashflows, the quarterly interval provides a key moment of assessment.
Two months after the June rent day, landlords had collected nearly 70% of money owed, up from just over 18% on the due date, according to analysts at property software firm Re-Leased. The figures relate to rent expected at the beginning of the quarter and so don’t reflect the considerable agreed reductions being negotiated by many retailers.
This month’s rental haul is expected to follow that pattern. Shops may have reopened in June after a near three-month lockdown, but the slow return to the high street has kept the economic pain going.
The pandemic appears to have accelerated the switch to online shopping, and made many think twice about spending on non-essentials as potential job losses and pay cuts loom. Cash-strapped retailers are taking advantage of a temporary ban on evictions for non-payment of rent – now extended to the end of December – to conserve cash.
This is a substantial level of debt that runs into the billions, placing huge pressure on landlords
Tom Wallace, Re-Leased
Since 16 March, just over half of retail rents and just under 70% of leisure rents have been subject to some form of renegotiation, according to consultancy Remit.
Strong groups such as Next and JD Sports have used their muscle to agree significantly lower deals as leases end. More battered retailers, such as New Look, have resorted to insolvency proceedings to obtain rent holidays or a change to turnover-based rents.
Tom Wallace, chief executive of Re-Leased, said: “All eyes are now on 29 September and what the next quarter will bring. With new restrictions announced on 22 September and the extension of the rent moratorium the week prior, there is a strong suggestion that an improvement in rent collections may not come to fruition.”
He added that the shortfall in income for landlords should not be underestimated. “This is a substantial level of debt that runs into the billions, placing huge pressure on landlords.”
As the months of poor trading go on, the system is creaking at the seams. Even the Queen’s finances are coming under pressure: the Crown Estate has collected only around 52% of rents due from its retail tenants. Last week, Shaftesbury, one of the biggest landlords in central London, said high street businesses had paid less than half of the rent due since March.
Melanie Leech of the British Property Federation, which represents thousands of landlords, says the rising debt is now “too high a mountain for businesses and property owners to climb on their own”.
She is argues that where businesses simply cannot pay this debt, the government should provide support through a “bounce-back grant” covering half the rent, while landlords and tenants agree on how to cover the other half.
Details of the latest quarterly rental haul may ramp up pressure on the government to act.
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