Landlords brace for worst quarterly rents day

The British Property Federation anticipated that as little as 20% of retail occupiers would pay third-quarter rent due tomorrow, although Retail Week understands that number could be as low as 10%.

Althugh non-essential stores reopened last week, property experts said that the collapse of retailers’ earnings during lockdown and the government extension of a ban on forced evictions meant tomorrow would be the worst rent day on record for landlords.

One property source said: “It’ll be about 10% or 15% who end up paying. That’s going to be the lowest return in terms of rents on a quarterly day in history. For landlords, this situation is completely unprecedented. There’s no doubt this has been the worst period for property landlords ever.”

Another senior property consultant agreed and said the government’s extension on banning evictions until the end of September had left landlords effectively helpless.

“It’s a very tricky situation at the moment for landlords, because they’ve been rendered completely toothless for at least another quarter,” he said.

“They are going to essentially be relying on retailer goodwill and the relationships that they have with their occupants. That’s all well and good, but it only goes so far.”

A big rent shortfall would come as a blow to struggling institutional landlords such as Intu and Hammerson.

Intu was left reeling after it received just 29% of rents from retail occupants on its March quarter day. Since then, the Lakeside and Metrocentre owner has gone from crisis to crisis, having warned it may breach several loan covenants with lenders on key assets and drafting in KPMG as potential administrators.

Landlords have been increasingly vociferous in calling for retailers that can afford to pay rents to do so, but one property source said it would be “crazy for retailers to pay, even if they wanted to”.

He pointed to footfall figures published yesterday by Springboard for the first week of trading after reopening, which showed that, while footfall did surge week on week, it was still down 54% year on year.

While some retailers such as Primark, Sports Direct and Zara experienced queues on June 15, these have mostly dropped away. Sources said that, after three months with no revenue from shops, many businesses would be struggling to find a quarter’s worth of rent in advance.

In a desperate bid to get retailers to agree new leases, many landlords will have tied occupants to turnover-based agreements since March – negating the need for them to pay quarterly and removing many upcoming lease breaks in the process, said the property consultant.

In March, some of the UK’s largest high street retailers, such as Primark, Superdry, JD Sports, Arcadia and Debenhams, all either withheld rental payments or negotiated deferments and rent holidays.

Last Friday, the government published a new code of conduct designed to ease the increasingly fraught relations between tenants and landlords.

One source described the code of conduct as “a lovely document that’s nice to have”, but said ultimately the whole system of valuations was broken and needs to be fundamentally changed.