INSTITUTIONS AND OTHER INVESTORS FACING SUBSTANTIAL SHORTFALLS IN INCOME DUE TO NON PAYMENT OF RENTS AND SERVICE CHARGES ON COMMERCIAL PROPERTIES
Research suggests that the projected shortfall in rent and service charge could be over £943million
Institutional investors and other landlords of commercial properties could be facing even bigger shortfalls in income in the current quarter compared to the first three months of the Covid-19 lockdown, according to the latest research by Remit Consulting.
Working in conjunction with the British Property Federation (BPF), the RICS, Revo, the Agents Advisory Group and other members of the Property Industry Alliance (PIA), Remit Consulting’s ongoing study into the amount of rent and service charge collected by managing agents and self-managed funds reveals that collection rates since June Quarter Day closely resemble the pattern for the previous quarter, but starting from a lower level.
Steph Yates, a senior consultant at Remit Consulting, said: “The data suggests that the collection rates are on a similar trajectory to three months ago but with quarterly income at a lower level to begin with. Unless there is a significant upswing in payments across the board, it is feared that the situation for institutions and other investors could turn out to be worse than the previous quarter in terms of income levels.
“Based upon the 125,000 leases analysed, regarding 31,500 separate commercial properties, our research suggests that the pension funds and institutions involved could see a shortfall in their expected income of around £943 million by the end of the current quarter.'“
“The first seven days of the quarter indicates that the collection rates of rent and service charge closely resembled those recorded following March Quarter Day and that the percentage increases over the first week are very close to those seen previously. In March, however, 49% of rents were collected on the due date, along with 37% of service charge payments. By comparison the respective figures were 37.8% and 33% for June Quarter Day. Seven-days after the due date the overall figure for rent collected had risen to 50.7% and overall service charge payments had risen to 46.3%.”
Remit Consulting’s research is based on the reconciled figures for rent and service charge payments collected by the country’s largest property managers as part of their reporting processes to many of the main pension funds, REITS and other institutional investors.
Melanie Leech, Chief Executive, British Property Federation commented: “It is disappointing to see rent and service charge collection continue to be depressed across all sectors as a result of the Government’s moratorium on property owners’ rights.
“We continue to work with other property owner and occupier trade bodies to press government for support to help businesses, forced by coronavirus to stop trading, with their fixed property costs. It remains essential however that all businesses who can pay their rent should do so, not only to avoid a mounting debt problem for the business itself but in order to protect the interests of the millions of people whose savings and pensions are invested in commercial property.”
Paul Bagust, RICS Global Property Standards Director, said: “The latest data shows that rent and service charge collection remains a significant issue across a range of asset classes. Given the importance of the commercial property sector to both the economic wellbeing of the country and all those spaces that define our everyday lives, its essential that landlords and tenants continue to work together to find common ground. RICS will continue to work with Government and industry to provide a long term solution.”
Bill Hughes, Head of LGIM Real Assets and Chair of the Property Industry Alliance, commented: “We welcome the Chancellors additional measures to support the hospitality industry in combatting the impact from Covid-19, amidst the ongoing crisis, and the recognition of the important role this sector and the construction industry both have to play in supporting UK jobs.
“We would like to see this matched with greater support and fairness of treatment for landlords across all sectors, and the pension money that sits behind UK real estate, protecting this important source of long term investment in the built environment and our long term economic growth prospects.”
In the retail sector, seven-days after they were due, just 42.2% of the rent and 37.5% of service charges had been received, rising from 35.5% and 27.6% respectively. High Street retail witnessed the largest percentage increase in rent collection, with a 115% increase over the seven-day period, compared to just 113% increase for shopping centres.
In the leisure sector, the total rent collected from pubs, bars & restaurants rose from 7.3% to 13.6% (representing a 186% increase in collection). This was ahead of the lifting of the government’s restrictions on such properties opening and suggests that operators might have been optimistic about the prospects for their incomes ahead of reopening.
The biggest increase in rent payments was seen in the business and office park sector, where there was a 230% increase in payment of rents, which rose from 36.2% on the due date to 83.3% seven-days later. The overall collection of rent for all offices rose to 71.2%, suggesting that office occupiers in town and city centres were more reluctant to pay their landlords on time.
