Just 18.2% of UK commercial rents received on June quarter day

This contrasts to 25.3% that was received on March quarter rent day, representing an overall decline of -28% over the three-month period.
 
Re-Leased’s analysis is based on live rental collection data from over 10,000 commercial properties and 35,000 leases on its UK platform.

‘For months, the industry has been speculating what the real impact of coronavirus will be on the UK’s property market,’ said Tom Wallace, Re-Leased’s CEO. ‘June quarter gives us the first real indicator of the severity of the crisis and quantifies the pressure both landlords and tenants are under.

'Looking at the level of rent that was collected on due date is sobering, but initial signs are not as catastrophic as some were forecasting. We expect rent collection to steadily increase over the coming weeks, but it is unlikely to reach the level that we saw in March.’

Re-Leased’s analysis for the March quarter revealed that 67% of commercial rent had been paid 60 days after the deadline. This compared with a figure of 84% for the December 2019 quarter.

Re-leased’s data for June reveals that each sector is responding differently to the crisis, with retail assets being the worst affected collecting only 14% of rents in June, down from 20% in the previous quarter.

Offices have also experienced steep declines with 23% of collection, down from 31% in March.

Industrial assets received 16.2% of rent due, despite being touted as one of the strongest asset types during the crisis. Figures are down from 23% in March.
 
Wallace continued, ‘We continue to encourage landlords to work as closely as they can with their tenants to understand what payments may or may not be possible for June but also the remainder of the year.

Across all sectors, we have already seen landlords offering rent holidays, deferrals, and reductions where possible which is encouraging, but transparency is key. It’s crucial to remember that like tenants, landlords will be experiencing significant cash flow problems and have their own financial obligations to meet.’

Looking ahead to the end of the year, the firm expects there will be more pressure to come.

‘Vacancy rates, rental values, lease terms are all going to see noticeable shifts over the next six months. The temporary ban on evictions for non-payment of rent and the government furlough scheme is providing a lifeline to many tenants at the moment, but those measures will not last forever,’ added Wallace.

Goodbody’s analyst Colm Lauder expects the weak rental payments to have a wider impact on the economy and possibly change the way institutional investors look at real estate. In a note sent to clients, he said that the landlords who are collecting the rent are mainly pension funds, insurance funds and life assurance funds, be it directly (through property ownership) or indirectly (through REITs and PropCos).

‘The weakened cash-flows will have an negative impact on their ability to pay policy holders and may change how institutional investors look at real estate,’ he said.

Commenting on the poor collection results, Apache Capital Partners’ co-founder and CEO John Dunkerley said the figures underline the need for institutional investors to diversify their real estate allocations to include emerging and alternative asset classes such as build-to-rent that have demonstrated resilience during this pandemic.
 
‘Our experience mirrors what can be seen in the US, where purpose-built rental housing is far more established an institutional asset class and premium apartment buildings have outperformed the wider market in terms of rent collection,’ he said.

‘Clearly there will always be a need for physical retail and the death of the office has been over-prophesied before but no one can be in doubt that COVID-19 will fundamentally transform the way we live and work, with a fundamental shift towards agile working.

'This will result in growing demand for properties with strong digital connectivity and dedicated workspaces, like build-to-rent developments.’