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£2 BILLION AND COUNTING . . .


 

Two weeks on from the moratorium on evictions being extended until the end of the year, we find ourselves at the latest flashpoint for relations between occupiers and landlords. Tuesday marked the latest quarter day, when the vast majority of rents become due, and the collection reports issued by managing agents to retail landlords will have made for grim reading.

According to commercial property management platform Re-Leased, just 12% of retail rents were collected on the quarter day itself, and retail industry trade body Revo warned that a total of £1.5 billion was withheld in March and June, and cumulative rent arrears in the sector will soon top £2 billion. With at least one more quarter day before the moratorium ends, this figure is only going one way.

There are, of course, a huge range of implications and questions caused by this mass non-payment of rent. Why have landlords been singled out as the ones able to bear the huge burden? Given property holdings underpin all of our pensions, what issues is this storing up for the future? How much longer can lenders show lenience with landlords who find themselves without income through no real fault of their own? When, oh when, will retailers start to pay rent again?

Most of landlords’ anger is reserved for those retailers that are patently trading fine thank you very much, but abusing the conditions created by the moratorium to withhold their rental payments. We will name no names, but it doesn’t take much online searching to find occupiers that have stayed open throughout – indeed, may have had a bumper few months – but have opted not to pay. That some of these are owned by private equity firms with deep pockets only causes more grievance.

In a perfect world, a return to normal would see these occupiers roundly ignored by landlords, their actions destroying their covenant and taking them off the list of must-haves tenants. But sadly, that is unlikely to be the case – in truth, they will be more sought after than ever. Because, to be frank, landlords aren’t going to have much choice if they want an occupier that can pay the rent.

Landlords need to stop seeing this year’s £2 billion plus shortfall as income that will return once things get back to normal. That money has not only disappeared from this year’s accounts, but a decent chunk of it – maybe even the majority – will not appear on future income statements.

We need to get used to the idea that the amount of rent retail occupiers as a group can shoulder has been massively and permanently reduced, with all the implications that presents for capital values, the viability and amount of floorspace the country can support, and the shape of our high streets.

Shops are not going to disappear, not all of them anyway. But there’s going to be less of them, and they will pay much less in rent. After years of competition for space and upward-only rent reviews, the shoe is on the other foot, eviction moratorium or not, and those retailers that survive the pandemic will for the first time will have the whip hand. Landlords need to adjust their approaches accordingly.

Andrew Jefford, Account Director, Innesco

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