Having passed June Quarter Day +7 we have analysed our data and compiled a comprehensive update on rent collection across the Workman managed portfolio of more than 4,300 properties and over 20,000 occupiers.
As the UK’s largest independent specialist commercial property management and building consultancy firm, the data and accompanying commentary is hopefully a useful insight into this key element of investment performance.
Overall figures are a positive start
Overall rent collection is 61% which compares with 62% at the same point for the March Quarter where typically we would expect to have achieved 90% in a normal quarter. Service charge collection continues to lag behind rent with 55% collected, compared to 85% under normal circumstances. In terms of sectors, we continue to see some disparity between the collection rates, as the graphic below shows.
Offices fare positively
This sector has fared positively with almost 70% in collection. Some feared that collection rates would decline across the sector due the extent of the lockdown period and offices remaining unoccupied. This does not appear to be the case and although down from our typical performance, Day +7 collection is in line with what we saw in the March Quarter. Collection within city centres seems to be performing better, with some London portfolios achieving in excess of 90% by Day +7.
There are clearly some businesses struggling during this difficult time and others making the most of Government restrictions around enforcement measures. However, many appear to be weathering the storm well and continue to trade positively during a period of lower office occupation. With the easing of lockdown restrictions, deferment arrangements for this quarter have become the exception, with monthly arrangements replacing these if at all.
Business Parks weathering lockdown storm
Whilst Business Parks have undoubtedly been affected, the nature of their open, out-of-town locations and occupier diversity they appear to be weathering this period more robustly than some other asset classes. Across the Workman managed portfolio of Business Parks we have seen the strongest collection rates of any asset class, with over 73% rent collected at Day +7. On one portfolio rent collection performance was at 62% on the quarter day date and 89% at Day +7.
Occupation of business parks has been light during the lockdown period, with low levels of critical staff in attendance. However, we are now starting to see a greater flow of occupiers and staff returning to offices and premises. With many business park occupiers using private vehicles as their primary mode of transport for commuting to work we expect to see the general occupation increase over the coming months. Encouragingly, a number of food operators across the parks have re-opened offering take-away and delivery service for park users.
There are ongoing challenges being faced around the use of many of the parks’ amenity facilities and enlivenment activities. The Workman site teams are working hard to find innovative ways to provide these facilities and maintain a sense of community among occupiers.
Retail and Leisure falls, but just slightly
Rent collection has been predictably slower than the March Quarter, indeed. However, not by much, at 1 to 3% and overall 46% of rent has been collected. In March, we noted that retail warehousing was typically ahead of shopping centres which has not been the case in the current quarter to date. The collection rates between these sub-sectors are very similar.
Clients are continuing to agree concessions which include monthly payments and deferred rent payments, typically for periods of six to 12 months. Many landlords have taken the opportunity to re-gear leases and with this, collection times have been extended whilst negotiations are ongoing.
Where rent concessions have previously been agreed for the March Quarter, some occupiers are now trying to renegotiate the deals which is impacting on rent collection. Service charges are generally still being paid with a lag of between 5% and 10% on rent collection. We have seen some national occupiers attempting to pay monthly in arrears which has been resisted, as well as several who are still refusing to discuss any rent or service charge payments.
Industrial rates holding up
Industrial collection rates have generally held up at 57% and are only slightly behind typical collection rates at this point and performance is ahead of the March Quarter. Quarterly payments, as opposed to monthly, have been the norm. This reflects the larger occupiers and those with multiple sites who can afford to pay their outgoings. The monthly payers are more likely to be smaller independents who need support and potentially some assistance from their landlords. Occupancy has remained relatively consistent throughout lockdown with the majority of occupiers continuing to trade and provide key services and manufacturing output.
Forecast: There is light ahead
It is probably fair to say that collection rates in the current quarter are not as bad as some feared, although there are exceptions. With retail opening up, offices beginning to be re-occupied and with continued close and effective dialogue with our occupiers we are hopeful we can outperform industry benchmarks.
It is, however, a brave person who suggests there is real light at the end of the tunnel just yet.
by Jim Hallan, Property Management Partner, Glasgow