Pension funds, insurance companies, REITS and other investors in commercial property experienced a shortfall in rental income of £4.2 billion last year, according to the latest research from Remit Consulting.
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), Remit Consulting has been analysing the collection of rent and service charge payments by the country's largest property management firms since the start of lockdown. The research covers around 125,000 leases on over 31,000 prime commercial property investment properties across the country.
The latest data published by the management consultants reveals that in December, at the end of the September Quarter, there was an overall shortfall in rent collection from tenants of commercial properties of 20.9%.
“When combined with similar shortfalls from the March and June quarters, we calculate that the collective loss to investors between the start of the pandemic and the end of the year totalled over £4.2 billion,” said Steph Yates, a senior consultant at Remit Consulting.
“On the basis that much of this unpaid income will be considered as ‘bad debts’, institutional investors who rely on rental income to help fund pensions, insurance payments and savings are dealing with significant losses and the shortfall has implications beyond the sector,” added Steph Yates.
The collection of rents that became due for payment by tenants on Christmas Day (December Quarter Day) have shown a similar pattern to those witnessed in the three previous quarters. However, the collection rates of service charge payments once again increased.
“The collection of service charge payments improved consistently during 2020,” said Steph Yates.
“With a greater emphasis and demand for property maintenance, cleanliness and security during the pandemic there is a realisation by many tenants that service charge payments are essential to keeping buildings functioning and usable. The fact that service charge payments are excluded from the Government’s moratorium of evictions might also have influenced the increased levels of payments,” she added.
“While last month's announcement that the moratorium on evictions will end in March provides some clarity to the situation, the impact of Covid-19 on the real estate market is not, as the government suggests, simply a question of landlords and tenants trying to ‘reach agreements on rent’.
“Our research suggests that around a quarter of all commercial property leases are subject to rent concessions and ‘holidays’ or have been renegotiated since the start of the pandemic. The fact that a week after they were due to be paid more than 40% of rent was still outstanding overall suggests that there is still a hard-core of tenants unwilling, or unable, to pay what they owe who are still not communicating with their landlords,” she added.
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.”