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The Sense Of An Ending: How Neglected Data Shows The COVID Property Story Isn't Over Yet

Nobody in Liverpool was surprised when Debenhams, the UK department store operator, crashed late last year. When the chain announced the closure of its remaining 124 stores, including the 185K SF unit in Grosvenor’s Liverpool One shopping district, landlords like the ducal Grosvenor empire resolved to move on. 

“It is something we have been preparing for,” Grosvenor said in a statement.

Talks with potential alternative users stepped up a gear, that’s all. 

The fate of Debenhams, and with it the loss of 24,000 jobs nationwide, dramatized the tectonic shifts wrought by the coronavirus pandemic during 2020. What an awful year, people tell themselves; thankfully it's over.


But beware of a mental trick, one humans often play on themselves. Placing the economic pain in 2020 makes it possible to tell ourselves that 2021 will be the year of recovery. The more pain we locate in the past, the more justifiable it becomes to believe that 2021 will be the year in which everyone, including the property industry, builds back better.

But what if that’s not right? What if a close look at some neglected, sideways-glancing datasets reveals a narrative that is far from reaching a conclusion, happy or otherwise? Despite the fact that Boris Johnson, the prime minister, has presented a 'roadmap' for the UK to leave lockdown, a look at the data shows that real estate still has a period of great unrest ahead of it.

Red Flags


Red Flag Alert has been measuring corporate financial performance and business distress since 2004. Its 2020 data makes for surprising reading.

Concentrating on the point at which debts outweigh assets, and corporate insolvency looms, its data for 2020 showed a 3.3% increase in insolvent debt compared to 2019. The big number for UK corporate insolvent debt was £1.89B.

Within that total some sectors experienced extreme movement. For instance, real estate and property services businesses saw insolvent debt rise by 56%. Debt changed year-on-year from £119M at 31 December 2019 to £186M at the end of 2020. Meanwhile, to nobody’s surprise, hotel and accommodation sector debt rocketed by 247%, whilst in the tourism and travel sector insolvent debt leaped by 135%.

But pause a moment and reconsider those figures. Yes, property and real estate debt was up, but look at the total. Just £186M recorded across thousands of small and midsized businesses, a very modest sum in a multibillion-pound sector. And yes, obviously the hotel and travel sectors had a rough 2020 but turn to the bar and restaurant sector and here the level of insolvent debt actually fell (down 37%).

The surprising fact about the Red Flag data is not how much damage has been done, but how little. The worst could be yet to come, as government support recedes.

“Changes in insolvent debt last year were significantly suppressed by the Government’s COVID-19 support measures. On first glance, this can seem like a huge positive, but it’s actually masking a very serious problem,” Red Flag Alert Managing Director Mark Halstead said.

“The Government is propping-up tens of thousands of ‘zombie companies’, which should actually be allowed to fail. Pumping taxpayers’ money into these struggling businesses is a lost cause and when Government coronavirus support ends, it will drive a sudden spike in companies going out of business, with them leaving behind billions of pounds in outstanding invoices that will never be paid.”

Halstead is far too polite to say that too many real estate businesses are living in a fool’s paradise, but it is probably true nonetheless.

“[The level of debt] is a real concern for sectors such as real estate, which are already operating with high levels of insolvent debt, as well as those well-publicised sectors hit hard by the pandemic — travel and tourism, hospitality and leisure — where debt is starting to accelerate. A sudden raft of failing ‘Zombie Companies’ is much harder for surviving businesses to deal with than these zombies disappearing at a gradual rate," Halstead said.   

Sensors And Software


Metrikus has sensors and software installed on behalf of a variety of owners and occupiers in large office buildings in major cities around the UK. Its anonymised data on people's movements into and around office workspace shows how effectively lockdowns stopped the commute to work, but they also show something else.

So first, the numbers. The first English lockdown from March to May 2020 saw about 8% of office workers go to the office. The third lockdown, in January 2021, fluctuated but settled at 18%. The November 2020 lockdown was 31%. Metrikus Chief Operating Officer Michael Grant draws two conclusions for these numbers.

“UK office occupation is double what it was during the first lockdown, which suggests that a significant number of people find working from home untenable in the long term,” he said.

“One feature we saw in both the second and third lockdowns is a small but significant pre-lockdown spike in attendance: 4 November 2020 was the busiest day in the office since 12 March and attendance on Monday 4 January was around 5% higher than the average for the next two weeks. This is despite nine months of remote working, and it indicates to me the strength of ties to the office.”

Now turn to the handful of 2020 summer months during which no lockdown was in operation. 

“We know that across the UK in September, offices were being used at about 40% of pre-lockdown levels,” Grant said. “Because we don’t track individual workers, more work needs to be undertaken to help clients understand the new blend of habits. These most likely exist between the two simplest explanations: that 40% of people were coming in five days a week, or 100% of people were coming in two days a week.”

Looking at public transport data, which moves up and down in close alignment with Metrikus data, makes Grant think that the second option might be more likely than the first.

“We think that a significant number of people want to be in offices at least some of the time and that the primary restricting factor on office use is lockdown, rather than a wholehearted embrace of home-working,” he said.

None of this is conclusive, but it is suggestive of an office market that may be winded — having up to 60% of your demand taken away isn't great — but isn’t in terminal decline.

Credit Notes


The third neglected data set relates to the credit notes landlords have been issuing to some tenants as a means of forgiving rental obligations. Data for 2020 was collected by Re-leased.

Credit notes were very rare in all sectors (between 1% and 2% of rents due) at the March 2020 quarter day. But during the year credit notes grew in popularity, with the industrial sector seeing credit notes peaking at 7.9% for the September quarter day, and office rents peaking at 6.6% for the December quarter day. Retail was always the least likely to be granted the favour of a credit note — because of the fragile nature of the tenants — peaking at 4.1% in December, a little below the office and industrial sectors.

On the face of it this tells us what we already know: Retail had a depressing 2020. But according to Re-leased, it might tell us something deeper about the quality of landlord-tenant relationships. That something is positive because analysts have been rethinking how they understand this form of debt relief.

The assumption had been that rental forgiveness showed how hard hit a sector was. Re-leased now thinks it shows instead that landlords trust their tenants, and that tenants plan to stay loyal to their landlords.

"Our data is showing that credit notes applied across all commercial assets have risen on average by over 3% year-on-year. We believe this to be an encouraging sign of the increasing levels of loyalty and communication between landlords and tenants across the market,” Re-leased Commercial Analyst Caleb Dunn said.

Dunn agreed that during 2020 retail landlords had a collision with reality and by December had largely reconciled themselves to the new normal, as reflected in more rental forgiveness. By year-end landlords were more or less as likely to see a future in their retail tenants as they were in their office or industrial tenants, contrary to received wisdom.

Likewise in the office sector, despite chatter about the death of the office, rental forgiveness shows a growing sense that landlords can rely on tenants (or, perhaps, that landlords have no choice but to rely on them).

“Landlords have been on a journey here. Conversations have evolved,” Dunn said. 

And if the rental forgiveness data offers good news for retail and office landlords, it offers a dose of realism for industrial landlords, because not everything in the industrial property garden is rosy.

“The level of assistance landlords are offering their industrial tenants is remarkably high. People assume everything in the industrial sector is more or less normal as it services the e-commerce sector, but the credit note data shows some operators are struggling. This shines a light. Maybe it's not just the office and retail sectors who are the troubled children. It may be more complicated,” Dunn said.


The three neglected data sets point to three conclusions. First, the worst is yet to come. Second, old habits die hard. Third, realism has begun to set in. None are projecting the future with confidence. None suggest an unhappy ending but all suggest the ending is still a long way off.

Could we have guessed all that? Maybe, although confident chatter about who will be the winners and who the losers, about the ‘new normal’ and the death of the office and city centres has made it hard to hear these more nuanced voices.

Back in the soon-to-be-shuttered or already redundant Debenhams stores, new life is blossoming. Lockdown rules permitting, the 80K SF former Debenhams in Wandsworth, South London, will be reborn the summer under the occupation of Gravity Active Entertainment. They promise bowling alleys, darts, ping pong, pool, cocktails and e-karting, as leisure replaces retail in the Landsec-owned unit.

Human beings love stories with happy endings, and it would be so human and so tempting to declare that the coronavirus story arc ends here, sometime in 2021. But these sideways glimpses of some unusual data sets suggest the drama may only just have begun.