By Peter Flint, Co-Head of Retail Brand Representation, Central London, at Colliers International
Once the Covid-19 pandemic has abated and the UK retail property market returns to some semblance of normality, the way in which landlords reacted to the crisis will be forensically assessed by retailers. The hard lessons learnt by both sides will reshape the landlord-tenant relationship and people will have long memories with regard to how all parties behaved when the chips were down.
The response from landlords has so far been extremely varied and generally falls into four categories:
(1) NO SUPPORT - landlords are enforcing statutory demands for non-payments of rent and winding up petitions.
(2) LIMITED SUPPORT - monthly rents are being offered to retailers and/or landlords are agreeing for rents to be deferred, but crucially the rent must be repaid over an agreed period of time (typically 12 months).
(3) SUPPORT - landlords are offering retailers a one to three month rent holiday (which does not have to be repaid) and reduced service charge payments. Alternatively, adopting a rent structured to turnover over the next three months or longer in some cases.
(4) FULL SUPPORT – A very limited number of landlords have agreed that no rent will be payable until the tenant can fully reopen plus a rent deposit return scheme to assist with re-opening costs and cashflow.
The package of measures the Chancellor has set out to get businesses through this period of disruption caused by the pandemic are well documented, but clearly the Coronavirus Job Retention Scheme and 12-month business rates holiday have given people some breathing space and chance of survival.
Landlords have also started to offer bespoke assistance depending on the circumstances of their tenant. If a retailer is able to continue to trade successfully through the crisis (e.g. food stores, pharmacies, newsagents) assistance is not required. It is also true that some retailers are better equipped to survive than others if they have cash reserves or have the ability to continue to trade online more successfully than others. All these factors should be taken into consideration during these negotiations.
We are seeing the more pro-active owners taking the opportunity to understand how their tenant’s business works by requesting detailed P&Ls and turnover projections to inform their response.
However, the harsh reality for retailers which are unable to trade during the next few months is that even support from landlords may not be enough unless a broader approach is taken. The next Quarter Day on June 24th is assuming huge significance. If the levels of rent collection then are at the same level – or worse – than the March Quarter Day then landlords will have less and less room to manoeuvre.
In this context, rather than provide piecemeal support, landlords may be well advised to explore the potential for a wider restructuring of leases. Restructuring could give retailers the required assistance they will need during the next 6-9 months and landlords would have a clearer view of the way forward for their asset. This could also give more reassurance to the providers of any debt secured against a property.
Restructuring is also more of a process of give-and-take. If retailers are willing to remove upcoming break options or agree to lease extensions (if there is an imminent lease expiry), landlords may be able to more easily justify giving them the assistance they require and for their businesses to survive. This approach may be the only way to save fantastic retail and F&B businesses disappearing from our High Streets, whilst also maintaining landlords’ income streams and investment values.
When we return to a more stable market, retailers are likely to have more choice available to them in terms of new store opportunities.
Given these options, they will consider how landlords responded to the lockdown market and will be more likely to deal with those who proved themselves constructive and supportive.
And, of course, landlords will also seek out the occupiers who took a similarly positive approach.
The pandemic will undoubtedly expedite structural change to our industry, but it will also bring an opportunity to re-balance the landlord & tenant relationship making it a more collaborative and open one.
Colliers International has launched a free helpdesk to provide London’s independent restaurant, retail, and leisure companies with specialist real estate advice during the COVID-19 pandemic, particularly those who may not have easy access to the high level professional advice available to the bigger firms. The helpdesk will also offer guidance to landlords and will become a nationwide rollout following the London campaign. For further information about Colliers’ helpdesk and to receive advice, click here, fill out the brief form on the website and the team will respond swiftly with a call back or invitation to join a group discussion.