UK retailers stumped up just 14% of the £2.5bn quarterly rent bill due this week, as the high street crisis triggered by the lockdown reverberated through the property industry.
The collapse in the rental take to a record low adds to the woes of Intu Properties, one of Britain’s largest shopping centre owners, which on Friday faces a deadline to convince lenders to grant a debt repayment holiday. If talks break down, the owner of the Trafford Centre in Manchester says it could go into administration.
The scale of the high street upheaval unleashed by the pandemic was also underlined by the problems faced by Pret a Manger which said it was “losing tens of millions of pounds each month” as its office worker clientele continued to work from home. The sandwich chain has told landlords that it would only be paying 30% of its next rent bill because it did not have enough cash to pay in full.
Shop landlords traditionally collect rent on a quarterly basis with the bill for the next three months supposed to have been settled on Wednesday. However retailers paid just 13.8% – leaving landlords waiting for more than £2bn in rent – according to the data from Re-Leased, a commercial property management platform. At the previous quarterly due date in March nearly a fifth of the shop rent arrived on the due date, it said.
Tom Wallace, the chief executive of Re-Lease, said the shortfall was “sobering” for the industry: “The June quarter gives us the first real indicator of the severity of the crisis and quantifies the pressure both landlords and tenants are under.” If offices and other industrial premises are included, 18.2% of commercial rent was paid on the June quarter day, Re-Lease said, a figure that compared with 25.3% in March.
The lockdown has had a huge impact on the number of people visiting high streets and shopping centres. Although Pret’s stores have reopened, its daily trade in baguettes and takeaway coffees built on the habits of millions of office workers is not there.
Pano Christou, the Pret chief executive, said sales were running at less than a fifth of normal levels and despite efforts to cuts costs it did not have sufficient funds to pay its rent in full. “We feel strongly that the Pret brand has every reason to believe it will thrive again, but we are currently in the eye of the storm,” he wrote in a letter to landlords seen by the Financial Times.
A Pret spokesperson added: “Despite reopening most of our shops, we are losing tens of millions of pounds each month and are not in a position to pay our June quarter rent in full. We are working with our landlords to find the best way forward.”
Analysts say cash-strapped retailers are taking advantage of a temporary ban on evictions for non-payment of rent in England, Wales and Northern Ireland – which the government recently extended to the autumn – to conserve cash and negotiate new rent deals with landlords. The government has also issued a voluntary code of practice that asks tenants to “continue to pay their rent in full if they are in a position to do so” while others should “pay what they can”.
The scale of the crisis means the British Property Federation expects only around a quarter of the retail rent bill will eventually arrive – a meager figure that will have a domino effect on property firms like Intu and their investors, many of whom manage pension-fund cash.
Melanie Leech, the chief executive of the British Property Federation, said the scale of the rent withheld meant there were “well-financed tenants who can pay their rent but are choosing not to do so.
“This undermines efforts to help those businesses in genuine need of help – and puts at risk critical future investment in our high streets and town centres, as well as our savings and pensions invested in commercial property.”