The latest research from Remit Consulting shows that 72.7% of commercial rent had been collected 35 days after the September Quarter day. This level of payments is continuing to reflect the amounts collected earlier on in the coronavirus pandemic.
The data projects that investors will see a further shortfall in rent payments of about 20% by the end of the quarter. By 3rd November, almost 70% of service charge payments had also been collected by landlords.
For the March Quarter, 74% of commercial rent and 63% of service charge fees had been collected by the 35-day point.
The office and industrial sector are achieving the highest levels of rent collection; 88.4% and 85.3% had been collected respectively by the 35-day mark for September. This compares to just 67.8% for the retail market and 47.6% for leisure businesses.
Steph Yates, senior consultant at Remit Consulting, commented: “It is evident that the stricter restrictions and limitations that had been imposed by the government in some parts of the UK earlier in the quarter, and the expectation of a national lockdown had little impact on the ability or willingness of business occupiers to pay their rent.
“Seemingly, the propensity of tenants to pay what they owe is not influenced by the level of the restrictions placed upon the population. While the full impact of the second national lockdown on rent and service charge payments remains to be seen, landlords and property managers are concerned, particularly with regard to the retail and leisure sectors.”
Substantial shortfall expected
Over the first six months of the coronavirus pandemic, Remit Consulting has calculated that landlords and investors have already lost more than £3 billion. This is expected to increase by a further £1.5 billion before the end of the fourth quarter.
Landlords are also facing a significant shortfall in service charge payments. These costs cover areas such as building maintenance, security, insurance and cleaning and non-payment is adding further pressure onto the relationships between landlords and tenants.
Due to the coronavirus restrictions, landlords can only begin the Commercial Rent Arrears Recovery (CRAR) process once a tenant owes at least 276 days in rent. This amount will rise to 366 days from 25th December 2020. The restrictions are currently in place until the end of the year. The CRAR system does not include the collection of service charge arrears.
Commercial rent forfeiture extension
The Government’s decision to extend the ban on forfeiture of commercial leases for rent arrears until the end of the year has had an effect on the market. However, as the deadline approaches those businesses that are struggling could become more likely to look at other financial arrangements, such as CVAs.
This will increase the financial issues for landlords, with the risk of tenants leaving them with large debts and empty properties.
Steph Yates added: “The extension of the government’s moratorium on forfeiture for non-payment of rents by tenants of commercial properties in August eased the prospect of company voluntary arrangements (CVAs) being exercised by business occupiers unable, or unwilling, to pay their debts. As the quarter progresses there are growing concerns with property managers, asset managers and investors that mass CVAs within the market could become a reality.
“In addition, there is a growing unease among investors concerning the impact that the drop in income could have on their ability to meet repayments on loans secured against properties. The impact of this could be disastrous for more highly leveraged businesses.”