With the full force of the government lockdown restrictions expected to hit for June’s quarter commercial rent, it was anticipated that collection levels would be significantly down. However, the latest data from Re-Leased, a commercial property management platform, shows that collections are higher than initially thought.
When compared with the March quarter rent, which was due at the start of the UK coronavirus lockdown, seven-day collection rates for June are at a similar level. Rent paid on the due date was at 18% across all commercial properties; which was down slightly from the 25% paid on the March due date.
However, by seven days after the due date landlords had received 46% of all rent. For the March quarter this figure was 47%. This shows that the sector has not been hit as hard as many first thought.
With more hospitality and leisure businesses able to open following the latest government easing of restrictions, it is expected that rent collection rates will continue to increase. At the 60-day mark for the March quarter, 67% of all rent had been collected.
Tom Wallace, Re-Leased’s CEO, said “For months, the industry has been speculating what the real impact of coronavirus will be on the UK’s property market. June quarter gives us the first real indicator of the severity of the crisis and quantifies the pressure both landlords and tenants are under. Looking at the level of rent that was collected on due date is sobering, but initial signs are not as catastrophic as some were forecasting. We expect rent collection to steadily increase over the coming weeks, but it is unlikely to reach the level that we saw in March.”
Commercial sector breakdown
Across the UK commercial property sector, the industrial market saw the highest level of rent collections. 53% of the rent due had been received by landlords at the seven-day mark, compared to 50% for the second quarter.
As expected, it was the retail market which saw the lowest figure for seven-day collection rates. Here only 40% of the rent was collected, which was slightly down on the 41% received by the same point for March. By 60 days after the March due date 59% of retail sites had paid their rent, which was a significant decline from the 83% paid at the same point for December.
For office sites, tenants had paid 52% of the rent due after seven days; compared to 53% at the same point in March, which rose to 74% at the 60-day mark.
Regional commercial rent collections
Across the UK, coronavirus has hit businesses hard, but there are variations in the rates of rent collection. For instance, at the seven-day point, landlords in the West Midlands had received 61% of all commercial rent due. However, in the East of England this figure was only 25%, which was a sharp drop from the 46% received at the same point for March.
A number of areas didn’t see any difference in the seven-day collection rates for March and June. The North East saw a 50% rate for both periods, with the East Midlands maintaining a 49% collection rate.
Other regions of England and Wales that saw a decline from March to June were Yorkshire and the Humber, the North West and the South West. These fell from 45% to 40%, 42% to 35% and 37% to 28% respectively for seven-day collection rates.
Rent relief increasing
Even though collection rates might not have fallen as sharply as predicted, there has been a rise in the use of credit notes. These have been arranged between landlords and tenants, often as a way of ensuring businesses can keep going through the pandemic. Many landlords are seeing the benefit of forfeiting some of the rent in the short term to maintain a long-term tenant.
The March quarter saw a record number of credits issued to tenants compared to the two-year average. However, this figure has more than doubled for June, with a figure of 2.2% compared to 1% in March.
The retail market has seen the sharpest increase in credits awarded by landlords – with 2.4% by June day seven against 0.5% for the same date in March. The highest percentage of credits issued was for the industrial sector. Here landlords awarded 3.9% by 7 days after the June due date, compared to 1.5% by the same point last quarter.
Mr Wallace continued, “We continue to encourage landlords to work as closely as they can with their tenants to understand what payments may or may not be possible for June but also the remainder of the year. Across all sectors, we have already seen landlords offering rent holidays, deferrals, and reductions where possible which is encouraging, but transparency is key. It’s crucial to remember that like tenants, landlords will be experiencing significant cash flow problems and have their own financial obligations to meet.
“Looking ahead to the end of the year, we expect there will be more pressure to come. Vacancy rates, rental values, lease terms are all going to see noticeable shifts over the next six months. The temporary ban on evictions for non-payment of rent and the government furlough scheme is providing a lifeline to many tenants at the moment, but those measures will not last forever.”
More Information:
June quarter day sees just 18% of commercial rent paid
Government extends ban on lease forfeitures for a further three months