Retail real estate investment trusts (Reit) are already nursing heavy losses. By late August, retail landlords had still collected just 59 per cent of second quarter rent and 60 per cent of that due for the third quarter, according to data from commercial property management platform Re-Leased – lower than the office and industrial sectors.
Some landlords have come to agreements with tenants, including rent payment plans, waivers and lease restructuring, recognising the immense stress being placed on high street operators. Shaftesbury (SHB) has already announced that it has extended support arrangements for some tenants by a further three months to the end of December 2020. Unsurprisingly, shares in those Reits have fallen by 85 per cent so far this year and account for just 2 per cent of the UK Reit sector market cap, according to Panmure Gordon estimates.
But as the balance of power has been tipped more in the favour of occupiers, some tenants have been able to resort to more forceful tactics to secure more favourable lease terms. For smaller, independent retail and leisure outlets to withhold rent is one thing. But some big-name brands, notably JD Sports (JD.), have attracted the ire of landlords over their decision to partially withhold rent following the outbreak of the pandemic, despite sitting on large cash piles. The sports fashion retailer has argued that it would be unfair to pay full contractual rents when there “is no realistic prospect of any income from a store”. Meanwhile pharmacy chain Boots has also withheld rent as it seeks to put the "relationship with our landlords on a more modern and equitable footing" following a rapid decline in footfall post-pandemic. Town Centre Securities (TOWN) said it has not received a penny since Boxing Day last year.
Public sympathy for large, commercial landlords has historically been in short supply. But disarming landlords, which have their own finance costs to service, while offering no support is merely exacerbating pressure further up the industry operating chain. For companies that were already suffering from falling asset values and a rising number of tenants launching company voluntary arrangements, breathing room is sparse.
A less combative way forward is needed. The British Property Federation and British Retail Consortium are among those calling for the government to introduce a Property Bounceback Grant to facilitate negotiations between landlords and tenants. A government grant of up to 50 per cent of rent and service charges between March and September would cost £1.75bn, according to analysis commissioned by the trade bodies, yet the total return to the Treasury in terms of tax revenue from economic activity would be almost £7bn, and 375,000 jobs would be saved. Grants would be conditional on agreement by the landlord and tenant to account for the remaining 50 per cent of the rent and service charges through the government’s Code of Practice.
