Financial institutions face further shortfalls in rental income from commercial property portfolios

• Rental income shortfall from business occupiers reached £5.34 billion over the first 12-months of the pandemic

• March Quarter Day collection figures worst since June 2020

Pension funds, insurers, institutions and other investors in the property sector experienced a shortfall of £5,343,435,000 in rent collected on commercial properties over the first twelve months of the pandemic, according to the latest research published by Remit Consulting.

Based on verified financial reports from national firms of property managers responsible for 125,000 leases on over 31,000 prime commercial property investment properties across the country, Remit Consulting analysed rent and service charge payments for the three months between Christmas and the March Quarter day.

“Over the 90 days of the December Quarter, the shortfall experienced by investors, many of which are pension funds, insurers and other institutions totalled over £1.1 billion with 78.6% of the rents due collected overall,” said Steph Yates, a senior consultant at Remit Consulting.

“While this figure is generally in line with the previous three quarters of the pandemic, there were some concerning trends within the different sectors that we study with the rent collected on leisure properties (restaurants, pubs, etc.) falling by nearly 6% compared to the previous quarter. The same comparison for retail properties saw a fall of nearly 3%.

"The initial analysis of the data on rent collection for the March Quarter Day indicates that property managers are seeing further falls in the levels of rent paid across the board. Overall, less than half of the rent payments due on March Quarter Day were received by property managers and reveal the poorest start to a financial quarter since June last year, which were the lowest collection rates of the pandemic so far," said Laura Andrews of Remit Consulting.

"After 12 months of lockdowns and restrictions, it is possible that the ongoing uncertainty regarding the route out of the pandemic, combined with a further extension of the Government's moratorium on evicting tenants due to non-payment of rent because of Covid-19, is causing further issues with rent payments from business occupiers,” she added.

Steph Yates confirmed the concerns of property managers and many institutional asset managers regarding the uncertainty surrounding many tenants’ ability to pay their debts.

“The extension of the moratorium at the beginning of March will have pleased the hard-core of business occupiers that are choosing not to pay rent. It may also have caused other tenants to withhold their rent. While they remain in occupation without paying rent, landlords are faced with stranded assets, not knowing if the tenant is viable or not. Paraphrasing the Nobel Prize-winning physicist, we are describing them as ‘Schrödinger’s tenants’ - occupiers that are simultaneously both alive and dead,” she said.

Remit Consulting also reports the growing expectation within the property sector that, when the moratorium is lifted, the market might see an increase in the use of Company Voluntary Arrangements (CVAs) as an escape route for businesses struggling to pay their rent.

Government statistics, provided by The Insolvency Service, show that during 2020 insolvencies in the UK, including CVAs, was at their lowest since 2010. Additionally, the number of CVAs in February was just a third of those witnessed twelve months earlier.

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 moratorium, shortfalls in rent collection and the rise of Schrödinger's tenant.

While it was expected that the Chancellor of the Exchequer would use his budget speech to announce an extension to the government's moratorium on the eviction of commercial tenants due to the pandemic, the news of another extension actually came a week later in a statement from the Housing and Business secretaries.

Property owners and investors will now have a further three months during which their inability to pursue non-paying tenants in the courts will not only inflict further financial pain for those reliant on the income from commercial property investments but will also increase the levels of outstanding debts accrued by tenants unwilling or unable to pay.

“Extending the moratorium again simply delays the inevitable while increasing the burden on pension funds, insurance companies and other institutional investors,” said Steph Yates of Remit Consulting.

“Our research shows that there is a hard-core of business occupiers that are choosing not to pay rent. They remain in occupancy but are not paying rent. To paraphrase Schrödinger, these tenants are simultaneously both alive and dead.

“The question among the property managers and asset managers that we have spoken to is how the mounting debts being accrued by tenants are to be dealt with. There is an expectation within the real estate market that, with mounting debts among tenants, CVAs will be an attractive solution to many occupiers who have been able to avoid paying rent without fear of eviction.”

Government statistics, provided by The Insolvency Service show that during 2020, the number of insolvencies, including CVAs, in the UK was at its lowest since 2010.

“It is possible that the non-payment of rent has allowed some companies to avoid collapse during the pandemic, and it’s hard not to see the Government’s moratorium as a multi-billion pound injection of cash by landlords and investors into businesses that are effectively insolvent,” added Steph Yates.

According to research by Remit Consulting, since the start of the pandemic and the announcement of the moratorium, owners of commercial property investments have, overall, seen a shortfall in their income of around 20-25% each quarter. The firm’s ongoing research regarding the collection of rent points to a similar shortfall at the end of the current quarter, which will mark 12 months since the start of the U.K.'s first national lockdown.

The data reveals that over the nine months of the pandemic, commercial property landlords in the UK experienced a total shortfall in their incomes of around £4.2 billion. It is estimated that by the end of March this figure will be around £5.5 billion.

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 in March 2020, 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.

NB. This article was edited following the announcement by the Government on the 10th March 2021.

Retail property rent collection levels fall compared to previous quarter

• Rent payments on retail property down around 5% compared to the same stage of the previous quarter

• Office and industrial markets performing closer to pre-pandemic levels

Remit Consulting’s latest research into the collection of rent and service charges from tenants in commercial properties reveals that while the rate of collection of rents in the current quarter is broadly similar to those seen in the previous quarter, in certain sectors, rent payment rates fell in comparison.

The research shows that 35-days after the December Quarter Day due date, payments by retailers were down around 5% compared to the same stage of the previous three-month period.

“In the office and industrial markets, we recorded rent collection rates of 89.8% and 86.8% respectively,” said Steph Yates of Remit Consulting.

“Drilling deeper into that data reveals that the rent collection from occupiers on business parks and out-of-town locations, along with those from specialist distribution and logistics occupiers, were even higher and, 35-days into the quarter, reached around 94%. These figures are not far off what we witnessed in the pre-pandemic REMark study of 2019.

“However, the situation in the retail market has deteriorated over the last three months and, after 35 days of the current quarter, only 45.9% of rents had been collected from high street retailers and just 31.6% of rents had been collected from pubs, bars and restaurants,” she added.

The research reveals that, overall, the figures for rent and service charge collection are following a similar pattern to that witnessed in the previous quarters of the pandemic, and suggest that, by the end of March, there will be a further shortfall in the income of landlords of around 20%.

Laura Andrews of Remit Consulting commented: “If the rate of collection of rents from commercial occupiers continues on its current trajectory, we can expect a total shortfall over the first twelve months of the pandemic of around £5.5 - 6.0 billion.

“The next Quarter Day will coincide with the anniversary of the first lockdown of the pandemic, along with the end of the Goevernment’s moratorium of the eviction of commercial tenants for non-payment of rents due to Covid-19.

“With many businesses, particularly those in the retail and hospitality sectors, still struggling to pay their rent, the future is looking particularly bad for the High Street. With the end of the Government’s moratorium on the eviction of commercial tenants looming at the end of the quarter, March could prove to be a perfect storm for tenants of commercial property,” she added.

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 in March 2020, 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.

Remit Consulting's rent collection research paints gloomy picture for the High Street.

• Rent and service charge payments on commercial property remain low

• Hard-core of tenants still unable or unwilling to pay

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:

1. Those who have agreed payment plans with their landlords

2. Those who plan to pay going forward without paying any back-dated rent and service charge payments (“non-payment plans”)

3. Those who cannot pay and will cease trading

4. 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.

Remit’s online ReTour event highlights the growth of cycling and active travel provision within the office market.

Remit Consulting hosted the first of four virtual “ReTour” events on the 14th January, with panellists from Make Architects, CO-RE, the London Cycling Campaign, 22 Bishopsgate and SpokeSafe.

Before the pandemic, the ReTour events featured a peloton of property professionals cycling around central London to visit some of the most innovative examples of cycling and active travel facilities in office buildings around the West End, Midtown, the Square Mile and the City Fringe.

The first of the Covid-19 versions of ReTour proved to be far more relaxed with over 350 people attending the webinar from the comfort of their own Internet connection!

Annie Panteli, operations manager at 22 Bishopsgate in the City of London was the event’s first speaker who described how the 62-storey building’s ‘Bike Park’ has quickly evolved into the ‘Active Commuter Park’ (ACP) and a place that can support all active travellers who work within the City landmark building.

The ACP provides 1,700 bike spaces of different designs (many with e-charging points), 1,300 lockers, 75 showers and a facility to hire bikes for short journeys around the city.

Highlighting the need for improvements to infrastructure all around London, Annie explained that, as part of the building’s initiative to provide “Active Commuting as a service”, a survey of occupiers was undertaken early on in the process. While this confirmed the demand for secure storage within the building (which can be accessed by the 22 Bishopsgate App) the biggest concern of occupiers was their safety on crowded streets and pavements during their journeys to and from the workplace.

Max Wilson of SpokeSafe picked up on the need for improved cycling facilities around the capital and described how his company is looking to help property owners to improve facilities for cyclists and monetise underutilised spaces in buildings by providing secure bike parking spaces that are accessible via a mobile app.

He also confirmed that during the pandemic SpokeSafe had noted a higher demand for storage facilities suitable for e-bike charging to the extent that the next facility to be opened in central London would have 25% of the spaces dedicated to e-bikes. Max attributed this to a widening of the demographics of cyclists with an increased number of older people choosing to cycle.

“We’ve also got of demand from the logistics market, like Uber Eats and Deliveroo,” he said, outlining their specific needs in terms of space and the high frequency of use with many visits to and from the storage facility during the day. He confirmed that future SpokeSafe facilities would have a clear delineation of users to separate the logistics users from commuters.

Max outlined his vision that with a growing network of SpokeSafe Hubs, outdoor lockers and third-party spaces managed by SpokeSafe the business could “provide cyclists, with nothing more than a phone and their own bike, access to an entire network of spaces.”

Access to bike storage, showers and lockers is also a key focus at 20 Ropemaker Street, the 450,000 sq ft, 27-storey development designed by Make Architects.

David Ainsworth of CO-RE, who is the development and project manager for the landmark office scheme, confirmed that the provision of high-quality cycling and active travel facilities was a key factor in the 2020 pre-let deal with law firm Linklaters of over 300,000 sq ft.

The property’s architect, Robert Lunn of Make Architects said that the building’s design featured a dedicated, principal entrance for cyclists and active commuters that would make it a “true entrance” and front door and highlighted that this was very important as, with potentially 800 bikes being stored in the building, it could be the main arrival and departure point for between 15 and 25% of all the occupiers.

He told the ReTour audience of the attention that had been taken in considering how to get so many cyclists, along with other active travellers, in and out of the building efficiently. This has been achieved through the use of a wide, shallow staircase with powered wheel ramp and lifts leading to a diverse range of cycle storage solutions, lockers and shower facilities.

The diversity of active travel methods and cycles was also picked up in the presentation by Stewart Dring of the London Cycling Campaign, which has seen great changes and advances during the pandemic. He highlighted the fact that more people are cycling around the capital, increasing the need for more cycling and better cycling infrastructure.

He praised the fact that “decades of progress had been made in a matter of months,” confirming that, before the pandemic, the Mayor of London has been looking to triple the amount of segregated cycle space over four years, five times as much had been put in place between the start of the pandemic and the end of the year.

Stewart also confirmed that London’s ‘Street Space’ programme would see further changes in the future with additional cycle lanes and wider paths, with more measures aimed at reducing access for cars to create low-traffic neighbourhoods.

Stewart suggested that an increase in cycling would improve many of the issues facing London, such as obesity and pollution, making the capital a more healthy and sustainable global city. Which can only be good for everyone.

The second ReTour event will look at the provision of cycling and active travel facilities within office properties across the UK and will be held on Thursday 25th February at 1700 and you can register by clicking here

REMIT CONSULTING CONFIRMS THAT COMMERCIAL PROPERTY INVESTORS SAW A £4.2 BILLION SHORTFALL IN RENT COLLECTION IN 2020

• Fears grow among investors, property and asset managers over the impact of tenants’ bad debts

• Collection rates in December Quarter no better than at the start of the pandemic

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.”

REMIT CONSULTING WARNS COMMERCIAL PROPERTY INVESTORS TO EXPECT A 20% SHORTFALL IN RENT COLLECTION THIS QUARTER

• Collection rates still no better than at the start of the pandemic

• 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 is continuing to mirror those witnessed in the early stages of the pandemic, according to the latest research from Remit Consulting which projects a further shortfall for investors of around 20% at the end of the current Quarter. 

The study relates to the collection of rent and service charge payments by 3rd of November, 35-days after the September Quarter Day and two-days before the start of the second national lockdown. The firm’s analysis of rent and service charges collected shows that, five weeks after the September Quarter Day due date, 72.7% of the rent on commercial properties had been collected overall, along with 69.8% of service charge payments.  

At the same stage in the March Quarter this year, 74% of rents had been collected and 63% of service charge payments had been received. 

Steph Yates, senior consultant at Remit Consulting, said: "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. 

“The trajectory for the rest of this quarter indicates a further substantial shortfall of approximately £1.5 billion can be expected by landlords and investors by the end of next month. We have 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.  These shortfalls effectively become treated as bad debts, meaning that, by the end of the year, landlords could be facing a total deficit in rent alone of up to £4.5 billion.” 

The shortfall in terms of the service charges owed by businesses on the properties they occupy is also outlined in Remit Consulting’s research.  These costs cover building maintenance, insurance, security and cleaning, etc.  The Government’s moratorium on pursuing unpaid rent through the courts during the pandemic does not cover the payment of service charges and the non-payment of these costs by tenants adds further pressure to landlord and tenant relationships. 

“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,” added 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. 

TIGHTENING OF COVID-19 RESTRICTIONS SEES A SLOWING IN COLLECTION OF COMMERCIAL PROPERTY RENTS ACCORDING TO REMIT CONSULTING

• 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. 

LATEST RESEARCH FROM REMIT CONSULTING REVEALS INCREASED COLLECTION OF COMMERCIAL PROPERTY RENTS

• 62% of rents due from business occupiers over the first seven days of the quarter

• 12% increase compared to same stage in previous quarter

• Remit Consulting’s research suggests better landlord and tenant cooperation

• Leisure and hospitality sector continues to struggle with rent payments

The overall collection of commercial property rents in the UK, a week after they were due to be paid on the September Quarter Day was almost 12% higher than the figure recorded in the previous quarter, according to the latest research by Remit Consulting.

The reconciled data, published by Remit Consulting in its latest REMark Report, reveals that seven days after rents were due, overall, 62.0% of rents due on commercial properties had been collected, almost 12% higher than in June and just over 5% higher than the figure witnessed at the same point in the March quarter.

The figures for service charge collections show that 56.3% of service charge payments had been received seven days after the September due date.

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 representing many of the main pension funds, REITS and other institutional investors, since the start of lockdown. The research covers around 125,000 leases on over 31,000 prime commercial property investment properties across the country.

Steph Yates, senior consultant at Remit Consulting, said: "While the figures relate to the period before the latest Government announcement regarding its three tier lockdown measures, the figures suggest a growing confidence among commercial property tenants and it is evident that landlords and tenants are cooperating to meet the challenges of the pandemic. There is also evidence that landlords are working closely with smaller tenants to make sure that they survive the ongoing crisis.

“This will be particularly important in the leisure and hospitality sector, which has by far the lowest collection rates,” she added.

Remit Consulting has calculated that over the first six months of the pandemic restrictions, there was a shortfall in rents collected by pension funds, rates, institutions and other commercial property landlords in excess of £3 billion. Despite the improved figures for the September quarter, the management consultancy expects the shortfall to continue to rise towards the end of the year.

COLLECTION FIGURES REVEAL THAT OVER 50% OF COMMERCIAL PROPERTY RENTS WERE PAID ON SEPTEMBER QUARTER DAY

• Payments from business occupiers rose by 12.7% compared to June

• Growing concerns regarding the ability of some investors to make loan repayments

• Hard core of business occupiers continue to not pay their rent

Over 50% of rent due from commercial property occupiers was collected on the September Quarter Day, according to the latest research by Remit Consulting, representing an increase of 12.7% compared to the previous quarter and higher than many industry insiders had feared.

The reconciled data, published by Remit Consulting for the September Quarter Day collection figures reveals that, overall, 50.5% of the rent due, and 44.4% of service charge payments were collected on last week's due date, compared to 37.8% and 33.0% respectively on the June Quarter Day.

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 representing many of the main pension funds, REITS and other institutional investors, since the start of lockdown. The research covers around 125,000 leases on over 31,000 prime commercial property investment properties across the country.

When compared with the June Quarter Day figures, Remit Consulting’s research shows that the collection of rent from retailers rose by 11.8%, those in the industrial sector rose by 17.3%, and office occupiers by 12%. The collection of rent from occupiers of leisure properties increased by just 5.7%.

Commenting of the research, Steph Yates, a senior consultant at Remit Consulting, said: “The increase in rent and service charge payments is welcome news, and while the figures for September Quarter Day are certainly not as bad as had been feared by many property and asset managers, the crisis is far from over.

“There is a growing unease among property owners and asset managers regarding the repayment of loans secured against buildings. Some investors are raising concerns that the drop in income is going to seriously affect the loan repayments they are capable of making. The impact of this could be catastrophic for more highly leveraged businesses.

“The latest collection rates are fairly similar to those recorded at the beginning of lockdown, which were significantly lower than the same period in 2019, and investors are monitoring the situation closely and are increasingly requesting detailed updates on a daily or weekly basis.

“We calculate that, over the last six-months, there has been a shortfall in rents collected by pension funds, REITS, institutions and other commercial property landlords in excess of £3 billion. Despite the improved figures for September Quarter Day, we still expect a further, significant shortfall this quarter,” she added.

Melanie Leech, chief executive of the British Property Federation commented: “While the majority of property owners and tenants are working well together to navigate this pandemic’s economic impact, the Remit Consulting figures suggest that well-capitalised businesses who have been refusing to pay rent, or engage with property owners, have not heeded Ministers’ reminder that those who can pay their rental debts should do so. This is incredibly frustrating and undermines both support for those businesses in genuine distress and future investment for our towns and cities.”

Paul Bagust, RICS Global Property Standards Director, said: “It’s essential that landlords and tenants from businesses big and small continue to work with each other to agree on how rents and service charges can be paid to ensure as many as possible survive and then thrive, which benefits us all”.

Vivienne King, Chief Executive at Revo, said: “ Whilst it is positive to see this moving in the right direction, it is clear that while the moratoria are in place we are going to continue to see huge shortfalls in rent paid, which is simply not sustainable. The pressure is mounting on property owners who are singled out to bear billions in lost income which poses a systemic risk that impacts us all.

“We need a clear direction from Government as to how we will transition out of this distorted situation where contractual arrangements are effectively being disregarded, and more pressure must be applied to those large well-capitalised businesses that are choosing not to pay.”

£3 BILLION MISSING FROM UK’S PROPERTY INVESTMENT MARKET SINCE START OF LOCKDOWN

• Only 72.5% of rent due to landlords on commercial properties was received over the June Quarter

• Prospects for September Quarter “look bleak”

As quarterly rent demands begin to land on the desks of business occupiers, Remit Consulting reports that pension funds, institutions and other investors in the UK commercial property sector have experienced a further £1.5 billion shortfall in the collection of rent over the June Quarter. Remit’s research shows that, since the start of lockdown, over £3 billion in rental income has now been lost by property investors.

Working with the British Property Federation, RICS, PIA, Revo and other professional bodies, and based upon the analysis of 125,000 property leases, Remit Consulting has been studying the collection of rent and service charge payments by the UK’s biggest property management companies since the start of the Covid-19 lockdown in March.

“Our analysis of the verified figures for the total rent collected 90-days after the June Quarter Day by property managers reveals that, overall, just 72.5% of payments due on commercial properties were received investors in the UK market. This is 6.4% lower compared to the previous quarter,” said Steph Yates, senior consultant at Remit Consulting.

“Based on data from the IPF, regarding the total value of UK property investments, this equates to a shortfall in excess of £1.5 billion over the last three-months. On the basis of our previous research for the March Quarter, this means that the income of pension funds and other investors now totals over £3 billion so far during the pandemic.

“With the moratorium on forfeiture for non-payment of rents by tenants of commercial properties still in place, local lockdowns and with people being encouraged to work at home, it is hard to see that this situation will improve by the end of the year. The prospects are looking bleak and if the Prime Minister's suggestion that the current restrictions could be in place for six months, it may well be much longer,” she added.

Melanie Leech, Chief Executive, British Property Federation said: “It is disappointing to see that the total shortfall in unpaid commercial rents has simply doubled over the past two quarters. While for many recovery is still at risk and more support will be vital, we continue to see well-capitalised businesses taking advantage of Government interventions and refusing to pay rent. All signals are pointing towards a total of £4.5bn in unpaid rents by the end of December, which is too high a mountain for businesses and property owners to climb on their own.”

UK rent and service charge collection data (March Quarter Day 2020 +90 days)

Note: The below figures are commercial averages only.

THE PANDEMIC’S GROWING THREAT TO UK PENSIONS

While the former pensions minister, Steve Webb, warns in The Guardian that the UK’s ‘pensions lifeboat’ scheme is at risk from “a huge wave of corporate defaults” as a result of Covid-19, company collapses and corporate defaults are not the only threat to pensioner incomes caused by the pandemic.

Since the start of lockdown in the UK, Remit Consulting has been working alongside the RICS, BPF, and other industry leaders, to produce a regular analysis of rent and service charge collection levels. Based on the reconciled figures reported to investors by their managing agents the research has involved data regarding around 125,000 leases on 31,500 prime commercial property investments across the country. 

Using the IPF’s market size data, we calculated that the shortfall in the March quarter equated to £1.5 billion. As we head toward the end of the June quarter, with collection rates following a near-identical trajectory, there is a strong prospect for a similarly bad quarterly shortfall and an income loss to the industry of £3 billion since the outset of lockdown is more than plausible. 

This prospect is a big concern, as a fall in the income of the pension funds, REITS and other investors will inevitably hit the wider population. As The Guardian article highlights, the income of many pensioners and savers is reliant on the performance of these institutions.

To keep up to date with the latest data on rent collection and service charge collections during the pandemic, please visit the register for our newsletter or follow us on LinkedIn and Twitter.

IN THE NEWS: UK RENT AND COVID-19

A recent article published by the RICS regarding the challenges of rent collection in the UK during the COVID-19 pandemic and the varying picture across regions and asset types featured the thoughts on the situation from Remit Consulting’s Steph Yates. 

Steph is acknowledged as the industry expert on the topic as, over the last nine years, she has conducted the firm’s regular REMark Study which has researched rent and service charge collection along with other trends and issues within the UK's property management sector.   

Since March quarter day, Steph has been 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), recording the amount of rent and service charge collected by managing agents and self-managed funds.  The research is based on the reconciled figures for rent and service charge payments recorded as part of the reporting processes to pension funds, REITS and other institutional investors and covers around 125,000 leases on 31,500 prime commercial property investments nationwide.   

The following is an extract from the RICS article

“Since the start of lockdown Remit Consulting has worked alongside the RICS, BPF, and other industry leaders, to build on REMark, its rent and service charge collection survey that’s been running since 2010 – what observations have they drawn from their data during this period? 

“The data comes from 125,000 leases on 31,500 prime commercial property investments across the country and is based on consolidated figures from the largest managing agents, REITs and funds. 

“Our data showed that, following the government’s moratorium on re-entry or forfeiture of commercial leases for non-payment of rent, the rate of collection plateaued, with many tenants apparently choosing not to pay despite the introduction of the government’s Code of practice for the commercial property sector.   

“The research allowed RICS and other partners to keep the government informed about the crisis in the property sector, with up-to-date, accurate and verified information.  

“The latest data reveals that while the trajectory of the collection rates for the June Quarter is mirroring that witnessed during the March Quarter, initial collection levels have fallen and the shortfall this time looks likely to be even bigger than in March. 

“Using market size numbers from the IPF, we calculated that the shortfall for March equated to £1.5bn of lost rent across the whole property investment market, so a £3bn shortfall over the two quarters is quite plausible. This prospect is a big concern for pension funds and insurance companies, as a fall in their income will inevitably hit the wider population, many of who have finances that rely on these institutions. 

“In 2019, Remit Consulting’s RICS insight paper The use and value of commercial property data highlighted that the industry was already at a tipping point with regard to the exponential growth of real estate data. The pandemic has brought data analysis into sharp focus and confirms our industry’s need to develop data standards that are open-sourced and applicable globally.” 

Steph Yates, Remit Consulting

NEWS RELEASE: COLLECTION OF COMMERCIAL PROPERTY RENTS REMAIN LOWER THAN PREVIOUS QUARTER

Latest research from Remit Consulting indicates that investors are facing another significant shortfall this quarter 

 The UK’s property market is on course for more stormy waters as the collection rate of rent and service charges for commercial property continues to falter, according to the latest figures from Remit Consulting regarding the payments that were due on June Quarter Day. 

The data shows that, overall, 35 days after the due date just 63.3% of rents and 64% of service charge payments have been received from business occupiers.  The rate of collection of rent continues to mirror the pattern recorded in the previous quarter but remain around 10% lower and another significant shortfall at the end of the quarter looks likely.   

“We calculated that the loss to pension funds, REITS, and other institutional investors at the end of the previous quarter stood at £1.5 billion.  The trajectory of the current quarter gives no suggestion that investors will fare any better this time around," said Steph Yates, senior consultant at Remit Consulting. 

“It was hoped, with anecdotal evidence of landlords and tenants agreeing monthly payment plans, that there might have been a noticeable increase in rent payments. This should have been evident in the figures for collection at 35 days, but there is no sign of this. With the moratorium on forfeiture for non-payment of rent by tenants of commercial property still in place, there still appears to be a divide between those trying to pay what they owe and those choosing not to. 

“The moratorium remains in place until just after the next quarter day at the end of September and the government’s handling of this will be crucial to investors. With the inevitable backlog that will be faced by the courts, this is not a situation that is going to be resolved in the short-term,” she added. 

The retail and leisure sectors were, once again, the worst-performing asset types for the June +35 day figures with 50.5% of rents collected from retail occupiers and 41.3% from leisure occupiers. The Leisure sector has seen a doubling of rents collected since the June due date, possibly reflecting the easing of restrictions on the sector.  

Remit Consulting’s research also reveals that, for the first time since the REMark Report was undertaken in 2010, the overall collection of service charges was higher, at 64%, than that of rent. This may imply that both landlords and tenants are prioritising building maintenance and ‘keeping the lights on’ over rent. 

Since the beginning of lockdown in the UK, the management consultancy has been 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), recording the amount of rent and service charge collected by managing agents and self-managed funds. The research is based on the reconciled figures for rent and service charge payments recorded as part of the reporting processes to pension funds, REITS and other institutional investors and covers around 125,000 leases on 31,500 prime commercial property investments nationwide.  

NEWS RELEASE: INSTITUTIONAL INVESTORS AND COMMERCIAL PROPERTY LANDLORDS BRACING FOR ANOTHER MAJOR SHORTFALL IN RENTS

Projections suggest another shortfall in commercial property rents for the June Quarter, similar to the £1.5 billion estimated to have been unpaid in the previous quarter.

Institutional investors, asset managers and landlords of commercial properties are bracing themselves for another substantial shortfall in income, according to the latest research by Remit Consulting, which suggests that the UK property market is on track for a further major shortfall this quarter of similar proportions to the £1.5 billion pounds that was not paid by tenants during the three-months following March Quarter Day.

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 and is based on the reconciled figures for rent and service charge payments recorded as part of their reporting processes to many of the main pension funds, REITS and other institutional investors. The study covers around 125,000 leases on 31,500 prime commercial property investment properties across the country.

The latest confirmed figures for collection rates of rent and service charge payments since June Quarter Day show that they are on the same trajectory as in the previous quarter, with the overall collection of rent after 21-days 8% lower, at 59 %, compared to 67% three months ago. In March 2019 collection rates for rent were around 97% after 21-days.

Steph Yates, a senior consultant at Remit Consulting, said: “Based on the IPF’s figures for the total value of property investments in the UK, the percentage of rent collected and recorded for our survey revealed a shortfall to the UK’s property sector of £1.5 billion for the March quarter. With the overall collection of rents due on June Quarter Day down by 11% on the March figures, and the rate of increase closely mirroring the figures from three months ago, our projections suggest that the industry could be facing another major shortfall of income this quarter.

“At the end of the previous quarter, the shortfall in rent payments was about 18% overall. After 21-days of this quarter, the overall collection figure was already 8% lower that at the same stage three months ago. Unfortunately, the projections for the remainder of this quarter will bring little comfort to investors and asset managers.

“At some stage this lost income will have to be written off, to the detriment of the annual returns for pension funds, insurance businesses, REITS and other investments. This will then begin to impact the incomes of large parts of the population and the wider economy,” she added.

Property owners in the retail and leisure sectors were, once again, the hardest hit with less than half of rent and service charge payments having been made three weeks after the June Quarter Day due date.

Paul Bagust, RICS Global Property Standards Director, said: “These new figures confirm that the effects of the COVID-19 pandemic are being felt very deeply. The current position places a huge burden on all parties − occupiers, owners and managing agents. It is critical that all parties work together flexibly to recognise these challenges and create an approach that’s proportionate and appropriate for each set of unique circumstances.”

Vivienne King, Chief Executive at Revo, added: “June Quarter Day has left property owners with a staggering £1.5 billion shortfall, with the loss of income most severe in the retail property sector. As we move past the quarter day the prospects of collecting any further rent is likely to reduce, with repercussions for owners, their lenders as well as the pension funds and savers who trustingly place their savings directly or indirectly in retail property. Government must re-examine how it can provide support for the retail sector, which is integral to economic recovery and the Chancellor’s pledge to protect jobs.”

Quarterly Rent Collection

NEWS RELEASE:

OVER £1.5 BILLION MISSING FROM UK’S PROPERTY INVESTMENT MARKET OVER DURATION OF MARCH QUARTER 2020

Retailers accounted for over half of the rent unpaid 90-days after the March Quarter Day

Institutions and other investors in the UK property sector experienced a shortfall of over £1.5 billion in rental income over the March Quarter, with over half of the shortfall being due from the retail sector, according to the latest research by Remit Consulting.

Working with the British Property Federation, RICS, PIA, Revo and other professional bodies, and based upon the analysis of 125,000 property leases, Remit Consulting has been studying the collection of rent and service charge payments by the UK’s biggest property management companies since the start of the Covid-19 lockdown in March.

“...a shortfall of £1.5 billion over the three-month period with the retail sector accounting for £780 million of this total.”

— Steph Yates, Remit Consulting

“The finalised figures for the total rent collected 90-days after the March Quarter Day reveal that, overall, just 82% of payments due were received by institutions and other property investors in the UK market. Based on data from the IPF, regarding the total value of UK property investments, this equates to a shortfall of £1.5 billion over the three-month period with the retail sector accounting for £780 million of this total,” said Steph Yates, senior consultant at Remit Consulting.

“The data for the beginning of the current quarter shows that collection rates are on an almost identical trajectory. With average collection on the June due date over 11% lower than three months earlier, investments in the UK property could see an even bigger shortfall this quarter,” she added.

Melanie Leech, Chief Executive, British Property Federation said: “The pensions and savings funds invested in commercial property clearly cannot continue to sustain rental losses on this scale, fuelled by the Government moratorium on property owners’ rights of action which has encouraged well-capitalised businesses to ignore their rental obligations. Those who can pay should pay. Meanwhile for the hardest hit tenants forced to stop trading and unable to meet their rental debts, we continue to work with other property owner and occupier trade bodies to press government for support to help them with their fixed property costs.”

Phil Clark, Global Head of Real Assets Equity at Kames Capital, said: “The pandemic has created a shock that is still rippling through the economy and not surprisingly a number of commercial property tenants have seen revenues decline and are struggling to meet their rent obligations. This also has a direct impact on our clients who are pension funds. The majority of responsible tenants and investors are working together to find reasonable solutions for both parties but there is no avoiding the fact that some businesses simply won’t be able to pay and some pension funds will receive less income as a result.”

UK rent and service charge collection data (March Quarter Day 2020 +90 days)

Rent

Service Charge

NEWS RELEASE:

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.

NEWS RELEASE:

GOVERNMENT MORATORIUM ON COLLECTING LATE RENT CONTINUES TO DRIVE BEHAVIOUR OF MANY LARGER TENANTS IN RETAIL AND LEISURE SECTORS

·       Collection of rent and service charge for commercial property on June Quarter Day worse than previous quarter

The government’s moratorium on taking legal action against tenants is changing the behaviour of many commercial tenants according to research compiled by Remit Consulting that also shows the amount of rent and service charges collected for commercial properties on June Quarter Day were even lower than in the previous quarter.

The management consultancy, 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), surveyed the country’s largest property management firms representing many of the main pension funds, REITS and other institutional investors. The research covers around 125,000 leases on 31,500 prime commercial property investment properties across the country.

The reconciled figures reveal that, overall, 37.8% of rent and 33.0% of service charge payments were collected on last week’s due date.

By comparison, Remit Consulting’s previous research for March Quarter Day showed that, overall, 49% of rents were collected along with 37% of service charge payments at the beginning of the UK’s lockdown.  In 2019 the figures for March Quarter Day were 79% and 73% respectively.

The June Quarter Day research also reveals that 53% of retail properties and 63% of leisure properties across the investment portfolios studied are subject to rent concessions, holidays or renegotiations put in place since March.  The comparable figures for industrial and office properties are 27% and 17% respectively.

“While the collection figures are worse than the previous quarter, they are better than many property and asset managers were fearing,” said Steph Yates, a senior consultant at Remit Consulting. 

“The leisure and retail sectors are clearly the worst hit and it appears that it is the large tenants, across all the sectors, that are agreeing concessions more than the small ones. This is the opposite to what was intended in the government’s recently issued code of practice for the commercial property sector and the moratorium on pursuing remedies for late rent is having a significant effect on the market,” she added.

Melanie Leech, Chief Executive, British Property Federation commented: “We warned Government that extending their moratorium on evictions would have an impact on rent collection far beyond the retail, hospitality and leisure sectors at the sharp end of the Covid-19 pandemic and it is disappointing to see that borne out in these figures.

“Government must continue to reinforce the message that those businesses who can pay rent, should pay so that businesses in genuine distress can be helped within the framework of the new Code of Practice.” 

Chief executive of Revo, the Retail Property Community, Vivienne King said: “Rent collection will vary for each property owner, but an average of just 35% paid in the retail sector and 21% in the leisure sector underlines the severe and sudden loss of income, which will have deeper repercussions for lenders, pension funds and savers. The moratorium on statutory demands winding-up petitions and commercial evictions has exacerbated the problem of non-payment, making it very difficult to determine which operator businesses are in genuine distress and which are simply refusing to pay their rent, despite the Government’s Code of Practice.

“We recognise genuine distress exists and urgently call on the Government to provide financial support on rents to restore stability to the retail property ecosystem and secure an industry ready to support the UK’s economic recovery,” she added.

Bill Hughes, Head of LGIM Real Assets and Chair of the Property Industry Alliance, commented: “The decline in rent collected is directly related to the extended government moratorium on landlord rights. We now need to see fairness of treatment for the pensioners that back large swathes of the UK’s real estate.  By encouraging greater alignment between UK’s occupiers and the long term money backing its real estate, we can safeguard the support of long-term capital to invest across the built environment of the UK, including its regions, and support a productive and positive economic bounceback.” 

Paul Bagust, RICS Global Property Standards Director, said: “A flourishing commercial property market isn’t just important for the economic health of the country. By providing a home for everything from retail to hospitality to office space, it shapes our everyday environment and impacts on how we work, live and play. The recently launched Government Code of Practice will help landlords and tenants resolve some of their issues, but fundamentally we are going to have to start reimagining what our town and city centres will look like to ensure they remain the beating hearts of their communities and stay financially viable.”

June Quarter Day rent and service charge collection figures:

For further information, please contact Steph Yates of Remit Consulting:  steph.yates@remitconsulting.com

June Quarter Day 2020 – the perfect storm?

Lockdown restrictions might be easing in the UK but, for many business and residential tenants, Wednesday 24th June could prove to be a very bleak and possibly a ‘perfect storm’ in terms of landlord and tenant relationships.

Wednesday is, of course, the June Quarter Day when commercial tenants will be expected to pay their rent and service charge for the next three months and, despite the government extending the moratorium on landlords taking action against tenants for non-payment of rent until the end of September, this will be particularly difficult for those occupiers who have been unable or unwilling, to pay their rent due to Covid-19 and lockdown.  Remit Consulting’s research into the rent and service charge collection of large property management firms showed much lower collection rates than in previous years, and that over half-way through the previous quarter, around 25% of rent and 30% of service charge payments had not been made.

Why is this important? For the average person, whether a shopkeeper, manufacturer or office-based business pays their rent is of no interest. To them the consequence of a landlord not receiving his rent is irrelevant. For those tenants unable, or unwilling, to pay the previous quarter’s bills - the start of the next quarter will be hugely challenging and, for shopping centres and the high street, in particular, casualties have to be expected.

The impact of Covid-19 and the UK’s lockdown has placed strains on many landlord/tenant relationships and, in some cases, the communication between parties has broken down. The recently published government “Code of Practice for commercial property relationships during the COVID-19 pandemic” might help to move the relationships along. It suggests that: “In considering a tenant’s request to renegotiate their rent,” landlords may wish to bear in mind a number of factors, which include “The tenant’s previous track record under its lease terms.”

The impact of what happens on June Quarter Day could have widespread ramifications for the wider economy. It is not just about a few retailers facing bankruptcy (we’ve become used to that news), nor is it just about landlords taking a hit on their income.  What it is also about is the loss of income by pension funds and life assurance businesses and their cash flows when it comes to paying policy holders. It is also about the funding of property developments in the future and the provision of homes and workplaces and the redevelopment of our town centres.

In private, many asset managers and institutional investors are terrified about what might come to pass on June Quarter Day and fear that it could be worse than March Quarter Day, when, on average, less than half of rents due were collected across the residential and commercial sectors.

With a view to getting ahead of the curve, we are aware of asset managers in the commercial sector who, are undertaking detailed analysis to identify businesses which are most likely to be unable to pay their rent as part of their risk assessments. Others in the commercial property market are considering their positions regarding rent deposits and guarantees.

It is fair to say that some asset managers are fearing a large number of insolvencies across their portfolios and any subsequent redundancies could have a direct impact on the residential markets where a tenant’s ability to pay rent is often reliant on them being employed.  The timing of the end of the government’s furlough scheme will be crucial if the economy is to avoid a significant rise in unemployment, which many in the market fear is inevitable.

Immediately following June quarter day, Remit Consulting will be receiving and collating data from property managers, landlords and others in the commercial and residential property markets. The findings will be available soon after.

To receive a copy, or to participate in the study, please contact us now.

NEWS RELEASE:

UPDATED RESEARCH REVEALS COLLECTION OF RENT AND SERVICE CHARGE IN THE UK HAS STALLED

• Minimal increase in collection rates of March quarter day rent and service charge

• 25% of rent and 31% of service charge payments remain unpaid after 49-days

• Fears that this could be “as good as it gets”

• Attention turns to June quarter day “perfect storm”

The collection of rent and service charge payments that remain unpaid to landlords since the March quarter day has stalled according to ongoing research by Remit Consulting.

Since the beginning of April, Remit Consulting has surveyed six of the UK’s largest property management firms, responsible for nearly 78,700 separate leases on over 18,350 commercial and residential properties across the UK, regarding the collection rates of rents and service charges payable by commercial and residential tenants.

Overall, seven weeks after they were due, just 75% of rent and 69% of service charge payments have been received from commercial and residential tenants in the UK (an increase of 1% for rent and 3% for service charge over the previous seven days).

The retail sector has been particularly hard hit, with only 59% of rent and 58% of service charge payments having been received.  In the residential market, 86% of rent and 67% of service charges have been received by the property managers involved in the report.

“With only a minimal increase in the collection of outstanding rent and service charges over recent weeks, the majority of landlords and property managers have low-expectations that the situation will change between now the next quarter and fear that this could be about as good as it gets. All eyes are now turning to June,” said Steph Yates, a senior consultant at Remit Consulting. 

“For many, the June quarter day will represent the perfect storm.  Having weathered the ride so far, not only will tenants be receiving their rent and service charge demands for the next three months, but the quarter day coincides with the end of the government’s 90-day moratorium on landlords taking action against tenants for non-payment of rent.

“For those tenants unable, or unwilling, to pay the previous quarter’s bills - the start of the next quarter will be hugely challenging and, for shopping centres and the high street in particular, casualties have to be expected.”

Remit Consulting has been surveying major property management companies regarding the collection of rent and service charges since 2010. 

The latest data from Remit Consulting is illustrated below: