With the end of the Government’s moratorium on the eviction of commercial tenants looming at the end of March and with many businesses, particularly those in the retail and hospitality sectors, still struggling to pay their rent, the future is looking bleak and particularly bad for the High Street, according to the latest research from Remit Consulting.
The firm of management consultants has been analysing the collection of rent and service charge payments by the country's largest property management firms since the start of lockdown, working in conjunction with the British Property Federation (BPF), the RICS, Revo, the Agent's Advisory Group, and other members of the Property Industry Alliance (PIA) in a study of around 125,000 leases on over 31,000 prime commercial property investment properties across the country.
The latest figures published by Remit Consulting reveal the volume of rent and service charge payments made by business occupiers since they became due on December Quarter Day (Christmas Day). The research reveals that, overall, 67.2% of rents and 63.7% of service charge payments had been received within 21-days of the due date – broadly the same as in the previous quarters during the Covid-19 pandemic. The data shows that office and industrial sectors saw increases in rent collection rates compared to the same stage in the September quarter, while the retail and leisure sectors saw falls.
“The current quarter is closely mirroring the collection rates seen in the preceding quarters during the pandemic and while the collection rates are not worse than in the previous quarter, the forecast is not looking good and there are storm clouds on the horizon,” said Steph Yates, a senior consultant at Remit Consulting.
“If payment of rent and services charges continue to follow the pattern seen previously, the expectation will be for around 80% of rents and service charge payments to have been met by the end of March. This appears to be the new normal for the commercial property market and reflects not only the economic uncertainty caused by Covid-19 and the inability of some tenants to pay, combined with the reluctance to pay by others.”
Remit Consulting highlights that this makes the ending of the Government’s moratorium on evictions in March a big deal for the market, particularly in the retail and leisure sectors, where collection rates for both rent and service charges have been consistently lower during the pandemic. The report suggests that if collection rates follow the form book, owners of retail and leisure properties can, at the end of the quarter, expect to see a shortfall of around 25% for retail properties and maybe 40% on leisure properties.
The REMark report suggests that, following the end of the moratorium, there are four groups of potential behaviours for those who are currently not paying:
- Those who have agreed payment plans with their landlords
- Those who plan to pay going forward without paying any back-dated rent and service charge payments (“non-payment plans”)
- Those who cannot pay and will cease trading
- Those who choose to pursue a Company Voluntary Arrangements (CVA)
“With service charge payments being excluded from the Government moratorium on evictions, the data suggest that around 25% of retail occupiers are either unable or unwilling to pay their rent, with an even higher proportion of leisure property occupiers in the same situation. These tenants must be considered to be vulnerable to insolvency, bankruptcy and eviction,” said Steph Yates.
“While the prospect of so many business premises becoming vacant as a result of the pandemic is of concern to everyone involved directly with the property sector, from property managers and asset managers to the pension funds, insurance companies and other institutional investors, it should also be worrying local authorities and town planners who could well see the impact of insolvencies in the coming weeks and months. Since last March the sustainability of businesses and the impact of the pandemic on the property market has, in the main, remained hidden, impacting only landlords, investors and property managers.
“At the end of this quarter, the effects on our towns and cities may become much more tangible,” she added.