Commercial landlords and tenants are struggling
Colin O’Reilly is sales director for Investor Solutions at MRI Software
The ongoing rollout of COVID-19 vaccines has offered hope for businesses struggling in the face of the latest lockdown, but this has been tempered by the spread of new, more transmissible variants of the virus.
The upshot is, while the vaccine programme will hopefully bring an end to lockdowns eventually, the reality remains that there is still uncertainty ahead.
Many businesses are struggling to pay their rents, and this will significantly impact the revenues and financial performance of owners and investors.
Data from the 150,000 live leases managed through MRI Software’s property management and accounting software revealed the proportion of outstanding rent payments in the UK commercial sector hit 19% in March, and then climbed to 24% in April and 34% in May before reaching 38% in August and peaking at 58% in October.
But the news is not all bad. There were also encouraging signs in the numbers, indicating that landlords have been supporting tenants through rent reductions, rent deferrals and shorter lease agreements.
Indeed, figures on rent reductions showed that owners and occupiers have been increasingly finding more flexible leasing arrangements to ensure the ongoing viability and success of their businesses.
From March through June 2020, there were 30% more rent reductions than during the same period in 2019, while the number of rent reductions increased by 46% in March, 82% in April, 27% in May and 11% in June compared to the same months in 2019.
Additionally, the average terms of new leases were down year-on-year to 52 months on average for March to June, from 69 months for the same four months the previous year, leaving tenants locked in for shorter terms to give them more flexibility moving forward.
However, as the uncertainty around the pandemic is expected to continue at least several months into 2021 and disrupt the viability of many businesses, tenants and landlords must continue to work together.
Both parties need to remain willing to explore new, creative and mutually beneficial solutions, such as linking rents to turnover in retail, or reimagining how office spaces will function – and be open to renegotiating terms.
Additionally, despite the current market challenges, there are still opportunities for landlords to diversify their portfolio and turn traditional commercial spaces into residential, co-working facilities or industrial and logistics centres.
All of these changes mean that businesses need to have the right tools in place to ensure transition is a seamless process.
Proptech solutions can be invaluable to landlords and tenants in a number of ways – from generating AI-driven data analytics so they can understand their lease obligations to helping them better utilise their physical spaces – all of which will support better decision making.
Ultimately, both commercial tenants and landlords are facing a period of significant change and all parties involved must continue to work together so are in a strong position to achieve post-COVID success.