News & Features

Covid-19 Impact on Commercial Property Sector

It is beyond question the COVID-19 pandemic has and will continue to have a profound impact right across the commercial property spectrum. If I turn my mind back to the beginning of the year the commercial real estate sector was enjoying something of a recovery. The general election in December 2019 and a resolution to the Brexit situation had finally provided some certainty to the market.  This changed almost overnight with the emergence of COVID-19.   

Almost immediately after national lockdown in March, many tenants began requesting assistance from landlords in particular with rents going forward. Some asked to pay rent monthly, some asked for a deferral, and some asked for rents to be waived entirely for the time being.  In most cases, there was no specific contractual right to allow a tenant to do this, and it very much depended on the attitude and position of the landlord.  To protect tenants the Government removed the ability for landlords to forfeit leases for non-payment of rent.  This measure has recently been extended until the end of December 2020, to the disgruntlement of many landlords.  I do appreciate the purpose of these measures, but my experience has been that a number of national retailers have used this protection to their advantage and not paid any outstanding rent.   This reluctance to pay rent has come through particularly with the June quarter figures as commercial tenants in the UK paid just 68% of rent for the June quarter.  The retail sector has been the hardest hit, receiving just 60% of rents due, while the industrial and office sectors performed significantly better at 75% and 76% respectively.  Over the next few weeks the September quarter rents become due. So my colleagues and I will be watching this closely too.

Whilst TDA has been working closely with our tenants and those of our clients over the last six months it is clear to me both landlords and tenants have equally felt the effect of the pandemic.  Of course this has not been uniform, some businesses have actually prospered.  Whilst others have closed completely.  At the top of the list has been retail, food and beverage and leisure sectors, which have all seen income collapse as properties have been completely shut. Notwithstanding the re-opening of the sector in the summer, and the government ‘Eat out to Help Out’ scheme, social distant measures has meant reduced custom and income.  

However, the recent government announcement that office workers who could work from home should do so in the wake of data showing a sharp increase in the number of Covid-19 cases, will also have an impact over the next few months.  This will be keenly felt in those city and town centres with large amount of office workers.   Many companies have aborted tentative plans to return to the office or asked staff to return to work from home.  Clearly the recovery of cafés, bars and restaurants that rely on office workers, in the retail, leisure and service sectors have all been halted in their tracks. 

On the positive side, I think there will be opportunities for example some prime retail sites will become available, either for occupational tenants or for potential redevelopment.  Local authorities should grasp the opportunity presented and look to play a key role in the repurposing of the High Street to ensure town centres remain attractive and useful spaces for the community.

I am confident demand for commercial space will come back in due course. It is unlikely to be back where it was in three or six months, but it will be in a year or eighteen months.  TDA is able to offer assistance with asset managers and landlords during this breathing space to work out how they are going to reoccupy and what flexible space is needed as they adjust to numerous staff wanting to work from home for at least part of the week.

Paul Palmer, TDA Head of Assets & Facilities Management

Paul Palmer
Head of Assets & Facilities Management
Email: [email protected]
Telephone: 01803 926391 or 07899 897167