Property Owners Face £2B Black Hole As Tenants Don’t Pay Rent Bills
The scale of the issue facing landlords and tenants as the coronavirus brings the economy to a halt began to emerge on Thursday, as property companies reported on just how much rent tenants did not pay when it came due this week.
Listed shopping centre REIT Intu said in a market update that it had received just 29% of the rent owed by its tenants on quarter day, 25 March, the day UK commercial tenants pay their quarterly rent in advance. On the same day last year, it received 77% of the rent it was owed, the company said.
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Unlisted community shopping centre owner Ellandi said on Twitter that it was at a “similar level”, and founder Mark Robinson added that tenants were also not paying service charge.
Service charge plays a big part in helping retail property owners pay for the day-to-day running of shopping centres and assets. Robinson told The Grocer that owners were trying to keep shopping centres open so that essential retailers like supermarkets and pharmacists could remain open.
The rent not paid by tenants will leave a huge black hole in the cash flow of property owners. The British Property Federation estimates that UK retail and leisure tenants have a quarterly rent bill of £2.5B, while retail body Revo puts the figure closer to £4B to £5B.
If only a third of that is being paid, that means that property owners have seen a collective £1.7B to £2.7B of rental income go unpaid.
Retail, hospitality and serviced office tenants have been particularly hard hit by income reductions as the coronavirus has spread. Economic activity in the hospitality sector has dropped 77% in the past month, according to wage data company Wagestream.
The UK government has said that all bars, restaurants and cafés must close, and only shops selling essential goods like food and pharmaceuticals can remain open.
It also said commercial tenants cannot be evicted for the next three months if they don’t pay rent, a mandate to protect businesses that have been affected.
Bodies like the BPF are in talks with the government about how they can mitigate the impact of these policies on property owners, who are now also seeing the income needed to pay staff and lenders reduced.
Intu said it was in talks to access government support schemes. Even before the coronavirus outbreak, the company was struggling to repay debt and had seen its share price drop by 95%.
Companies like British Land, Grosvenor, the Cadogan Estate and Argent have put in place a range of programmes to help tenants. Those include rent deferrals and, in some cases, forgiving rent entirely, especially for smaller tenants.