With the coronavirus restrictions still hitting many businesses hard, there were varying rates of commercial rent collections for the December quarter. Some commercial landlords saw an increase in rent paid amongst certain tenants, whereas in other sectors rates continued to fall.
Retail and hospitality tenants
One of the areas that saw continued problems at the end of 2020, was the retail and hospitality sector. Many commercial landlords struggled to collect rent form their tenants in these industries, which were some of the hardest hit by the coronavirus lockdown restrictions.
Landsec, which is the UK’s biggest commercial property development and investment firm, saw 65% of its rent for the December quarter paid on time. This compares to 94% for the same period in 2019.
The commercial landlord only collected 29% of the rent due from its central London tenants, which are mainly retail and leisure-based businesses. In addition, it received just 36% of the rent from its regional retail tenants by the due date. The office sector saw the largest amount of rent paid on time, with 87% collected.
Derwent London has also faced problems amongst its retail and hospitality tenants. For the rent due this quarter, only 26% had been collected on time. However, it did fair better in other sectors: 87% of its office rents were collected, with an overall 83% collection rate across all industries. These rates show an increase from the previous two quarters, indicating a slight improvement in fortunes for the business.
British Land saw difficulties with rent collection from its retail tenants. Seven days after the December quarter due date, the landlord had collected just 46% of rents from tenants in this sector. However, amongst its office tenants, 95% of the December rent has been collected.
£4.2 billion shortfall in commercial rent collection
Last year, commercial property investors saw a £4.2 billion shortfall in their rental income according to research from Remit Consulting. The research analyses the collection of rent and service charge payments across about 125,000 leases on more than 31,000 commercial properties.
By December, the data shows that there was still an overall shortfall of 20.9% for rent due in the September quarter. When this is added to the shortfalls from both the March and June 2020 quarters it totals over £4.2 billion.
Support for commercial landlords
At the start of last month, the Government further extended the ban on evictions from commercial properties until 31st March. The moratorium had initially been due to expire on New Year’s Eve, after already being extended twice since the beginning of the coronavirus restrictions.
The restrictions on the use of Commercial Rent Arrears Recovery (CRAR) were also extended until the end of March. From 25th December 2020, the amount of rent arrears that must be owed before a notice of enforcement can be issued or goods taken into control is the equivalent of 366 days.
The Government has been clear that those businesses who are able to pay their rent in full should continue to do so. They also introduced a Code of Practice last June to provide guidance on how both landlords and tenants should act in rent negotiations.
Melanie Leech, Chief Executive, British Property Federation said: “It is a bleak start to 2021 for businesses already hard hit by the impact of Covid-19. Property owners remain committed to supporting these businesses but themselves face significant pressure as mass non-payment of rent continues.
“It’s more important than ever that businesses that can afford to pay, but have exploited the moratorium and avoided payment, now pay their debt. Those businesses that are truly struggling and have not already engaged will need to come forward, treat property owners as economic partners, be transparent about their finances and work collaboratively to create a sustainable path forwards. The Government should do everything it can to incentivise this including extending relief from the crippling cost of business rates in 2021.”
The team at CEA Limited has been working with both commercial landlords and tenants throughout the coronavirus pandemic. Our experienced team can support both parties to come to a mutually beneficial agreement regarding rent negotiations.
We can also look at what other options are available to commercial landlords when the restrictions are eased.
To find out more, contact our commercial property team at office@cealimited.co.uk or call 0845 643 0635.
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Almost three quarters of commercial rent paid since September Quarter day