Initial data indicates that only 18.2% of commercial rent was received by landlords on June quarter day this week. This is a significant drop from the 25.3% that was paid on time in March – at the start of the coronavirus lockdown.
The sector that saw the lowest amount of rental collections was retail, which has been one of the hardest hit by the lockdown restrictions. The information from Re-Leased, a cloud-based commercial property platform, shows that only 13.8% of rent was paid on 24th June. This is a drop from 19.8% received on time for the March quarter.
However, it is actually the office property sector that has seen the sharpest drop in rental payments made on time. Just under 23% of rent was paid on time for the June quarter, compared with 31.2% for March. This equates to a decrease of 8.4%.
Across the industrial sector, 16.2% of rent has been collected for the June quarter, compared to 23% on the March quarter day.
The industry was concerned as to how much rental payments would be impacted by the coronavirus restrictions. This first analysis from 35,000 commercial leases shows the effect that it is having on tenants and, in turn, landlords.
Tom Wallace, Chief Executive of Re-Leased, commented: “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.”
Income expected to increase
As with the March quarter rental payments, income from the June quarter for landlords is likely to increase in the coming weeks. Data from Re-Leased highlights that 67% of commercial rent had been paid by 60 days after the due date.
However, this was a decrease from the 84% received by that point for the December quarter. It is anticipated that a smaller amount will have been paid 60 days after the June quarter was due.
Support for commercial landlords and tenants
It has been a difficult few months for both parties in the commercial property sector. Businesses across a number of sectors were forced to close as a result of the Covid-19 lockdown and many others have seen their trade reduce significantly.
The government has brought in a number of changes to protect commercial tenants. This includes issuing a moratorium on lease forfeitures, to prevent tenants from being evicted for non-payment of rent.
They have also extended the rules on starting the Commercial Rent Arrears Recovery process, so tenants must now owe the equivalent of 189 days in rent.
Code of Practice
A new code of practice has been introduced to encourage tenants and landlords to work together to come to an amicable solution. The code is voluntary and relevant to all commercial leases where a business has been impacted by coronavirus.
The code encourages tenants to pay all or part of their rent if they are able to, as well as advising landlords to support their tenants and help to keep businesses open.
Mr Wallace added: “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:
Government extends ban on lease forfeitures for a further three months