September collection rates mirroring those seen in earlier stages of UK lockdown
Fears grow among investors, property and asset managers over tenants’ bad debts
and the threat of CVAs
The collection of the rent due on commercial properties in the UK slowed slightly in recent weeks and is mirroring the rate of increase witnessed earlier in lockdown, according to the latest research from Remit Consulting.
The analysis reveals that overall, 21-days after they were due to be paid on the September Quarter Day, 67.8% of rent had been collected along with 65.3% of service charge payments. By comparison, after 21-days in the March Quarter 67% of rents had been collected and 56% of service charge payments had been received.
Steph Yates, senior consultant at Remit Consulting, said: "The latest figures come after the introduction of tighter Covid-19 restrictions on large parts of the country. What we are seeing is that the rate of rent collection from business occupiers has slowed but continues to follow a similar pattern to the previous two Quarters.
“However, both the March and June Quarters saw a substantial shortfall for landlords and investors and we previously calculated that, over the first six months of the pandemic restrictions, the cost to pension funds, rates, institutions and other commercial property landlords was in excess of £3 billion. With the current rate of collection, we can reasonably expect a further shortfall of approximately £1.5 billion at the end of this Quarter.
“At the end of each Quarter these costs effectively become treated as bad debts, meaning that, by the end of the year, landlords could be facing a total shortfall in rent of up to £4.5 billion.
“Before the Government’s last extension to the moratorium on rent payments, we understand there were reports of CVAs (Company Voluntary Arrangements) being prepared by business occupiers who were unable, or unwilling, to pay their debts. While the extension of the Government’s moratorium announced in August removed this immediate threat, there is a growing concern among property managers, asset managers and investors that the prospect of mass CVAs could become a reality.”
“This could prove disastrous for the property sector and the institutional investors that rely on the income from real estate to help fund pensions, insurance payments and savings,” she added.
Remit Consulting’s research also highlights the shortfall in terms of the service charges owed by businesses on the properties they occupy. These costs include items such as building maintenance, insurance, staff costs, security and cleaning.
“The payment of service charges is not covered by the Government’s moratorium on pursuing unpaid rent through the courts during the pandemic, and the non-payment of these costs by business occupiers can only add further strain to the relationships between landlords and tenants,” said Steph Yates.
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.
