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UK records highest commercial property rent collections since 2019

Commercial Rents

UK records highest commercial property rent collections since 2019

The UK has recorded the highest 21-day commercial property rent collection rates since the start of the pandemic, though consultants Remit say there is still some way to go before pre-pandemic levels return. 

Remit Consulting - as reported by commercial real estate information company CoStar - has revealed the highest 21-day rent collection rates for commercial property in the UK since the start of the pandemic.

The latest findings from Remit Consulting’s “ReMark Report”, show that 21 days after the March Quarter Day due date, 94.8% of rents due on commercial properties had been collected by property agents, managers, landlords and investors.

That’s the highest level recorded at that stage of the financial quarter since the pandemic and is edging further towards pre-pandemic levels. However, rent collection rates on the due date itself, and after seven days, still remain significantly below pre-pandemic levels.

Commercial rent collection hit its lowest point of 38 per cent in June 2020 when many businesses were shut down during lockdown, that’s according to the Financial Times (FT). The collection revenue has never fully recovered since. Tenants have been taking longer to pay, and extending their payments well beyond each quarterly deadline.

The improving trend is now an encouraging finding, especially in the light of the improvement in the general UK economic statistics, the economy missing a deep recession and Q 1 showing a 0.6% growth in GDP, prompting something of a mini UK stock market bounce.

Elijah Lewis of Remit Consulting, commenting on their ReMark Report findings says: 

"The turnaround in collection rates isn’t merely a byproduct of economic revival. Property managers have been crucial, adopting proactive strategies and enhancing rent collection methods, which have significantly impacted the results.

"Despite these improvements, it's clear that we are still some distance from 'business as usual' in the early stages of each quarter, and while the collection rates are on an upward trajectory, the issue of late payment on the due date remains a concern. These delays have broader financial implications for property owners, including potential losses in interest income for institutions like pension funds and insurance companies."

Remit’s ReMark Report relies on data from well over 100,000 commercial property leases and represents close to £2 billion in rent demands. These latest figures confirm that, while rent collection rates show an improving trend quarter by quarter, showing recovery from a time when the pandemic’s national lockdowns devastated collection rates for rents and service charges, they have yet to return to normal.

Retail, which was particularly badly affected by Covid lockdowns, according to Remit recorded its highest percentage of rent collected (77.6%) on the due date, since the start of the pandemic. This figure increased to 88.4% within seven days, and after 21 days it reached 94.5%.

UK Rent payments tradition

The UK commercial real estate sector has a tradition of quarterly in advance rent billing and payments. 

It means that tenants are dealing with, and must budget for, 3 months’ chunks of money every quarter, unlike residential rentals where the usual period is monthly, or is in some cases, just weekly in advance.

To ease their cash-flow budgeting some commercial tenants have requested a move to monthly payments in advance, breaking with the tradition that most commercial landlords prefer. There have also been moves, especially in retail to request turnover rents.

Of course, landlords benefit from quarterly payments as they’re getting more money up-front and once the payment has been made, a longer period of security. This may not seem a fair system to many tenants, but this has been the norm for commercial property leases in the UK for many years.

Creating a “lumpy” cash flow up-front requirement puts more pressure on tenants generally and when times get tough, as during the pandemic, it can lead to problems. 

What are the quarter days?

The traditional England and UK rent quarter days are: 25th December, 25 March, 24 June, and 29 September, just how that has evolved from ancient times. A useful mnemonic to help remember these is to add the number of letters in the month following Christmas day: 25 December, March has 5 letters, so 20 + 5 is – 25 March; June has 4 letters, so 20 + 4 is – 24 June; September has 9 letters, so 20 + 9 is – 29 September.

Some operators have moved to what could be termed modern quarter days, which would be: take the 1st of the month after each standard quarter day, viz: 1st of January for December 25, 1st of April for March 25, 1st of July for June 24 and the 1st of October for the September 29 quarter day.

Turnover rents

There are pros and cons for turnover rents for both landlords and tenants. When tenants are struggling to make regular cash flow, due to a fall in business like during the pandemic, turnover rents would help them as a portion of their rent is dependent on their income level.

Rent is usually one of the main outgoings for commercial tenants, along with their business rates, so when they are on a standard commercial lease with ‘upward only’ rent reviews there is no account taken as to the profitability of the business.

This may seem advantageous to the landlords but not if the tenant is unable to pay. Alternatively, turnover rents place some of the business risk onto the landlord, so when times get tough rent payments are reduced, but in the good times when business is booming, landlords gain more.

Turnover rents are dependent on having access to and auditing the business’s accounts, where the rent amount can be calculated with reference business sales (turnover). It is usual to have a low basic rent topped up by the flexible rent amount based on the business’s turnover.

The concept of turnover rents is not new by any means. It has been used successfully mainly in the retail and leisure sectors for years, and there has been a move to these arrangements since Covid struck. 

The cons

The cons are many, but it definitely works well in some situations:

Professional accounting management is crucial, otherwise turnover arrangements can lead to some nasty disputes, they can be complex to manage and definitely impose more of an administrative burden on the landlord. 

If the business performs badly, the tenant will affect the value of the property as commercial properties are partly valued based on the rental-return they can achieve. 

Where the landlord has substantial loaned capital, (1) there will be a need for approval to move to turnover rents from their lender and (2) the uncertainty of future rent payments may impact on their ability to repay loans.


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