The retail apocalypse is getting even darker for UK landlords


  • Property
  • Friday, 03 Jul 2020

Knocked-down prices: Shoppers at the Lakeside shopping centre, operated by Intu Properties. Covid-19 has piled on further doubts about the assets’ future, as the outbreak accelerates a shift to online consumption. — Bloomberg

LONDON: The collapse of mall landlord Intu Properties Plc is about to send shockwaves through a sector that’s already reeling.

Nine of the UK’s biggest shopping centres could potentially be sold into a market that had already seized up before the virus struck.

With the tenants of those properties only paying a fraction of their rent as the pandemic deepens a prolonged retail crisis, the risk they’re sold at knock-down prices threatens to further sink the values of malls nationwide.

And that all assumes one key factor: somebody wants them in the first place.

“The buyers of these assets will pay a yield that reflects the increased credit risk, the increased obsolescence, increased vacancy and reduced footfall, ” said Andrew Jones, chief executive officer of LondonMetric Property Plc.

“Tomorrow’s rent is a lot lower than today’s, so the price will reflect a new paradigm – it’s a pretty scary outcome.”

Retailers paid just 36% of third-quarter rent due last week, compared with 41% on the collection date three months earlier, according to data from Remit Consulting out yesterday.

Hammerson Plc, which owns about a dozen large UK malls, said on Wednesday it had so far collected just 16% of third-quarter rents that were due last week on its British properties.

Once a reliable source of cash flow, malls and stores have become a major drag on the share prices of landlords including British Land Co and Land Securities Group Plc.

The arrival of Covid-19 has only piled on further doubts about the assets’ future, as the outbreak accelerates a shift to online consumption that was pushing brick and mortar retailers to the brink even before they faced months of forced closure.

The meager rent payments are a grim indicator of how many retailers will actually survive the crisis, according to Rob Virdee, an analyst at real estate research firm Green Street Advisors.

Furniture chain Harveys and the UK arm of Victoria’s Secret are among those that were placed into administration in the past month.

And even those that avoid bankruptcy are slashing their real estate footprint.

Shirt maker TM Lewin plans to close all of its brick and mortar outposts and cut 600 jobs as it moves online, while John Lewis is planning to close some of its 50 department stores, the Evening Standard newspaper reported Wednesday.

“It is virtually every day that we get another administration, ” LondonMetric’s Jones said.

“I’m not interested in the current rent because I have no confidence that rent is going to stay the same.”

Landlords are having to work harder to maximise their rent collection figures.

Most have switched to monthly rents and are agreeing deals with individual retailers offering a range of solutions, from rent holidays in exchange for lease extensions to long-term repayment plans.

But it’s clear the balance of power has shifted. Pepco Group, owner of the Poundland value chain, said last month it had renegotiated the leases on 76 of its stores and secured rent cuts of more than a quarter.

Furthermore, a government decision to extend restrictions on tenant evictions hasn’t encouraged retailers to pay what’s due, Stifel analyst John Cahill wrote in a research note Wednesday. Even retailers that remained open through lockdown, such as Boots drugstores, withheld some rent payments.

Recognising the threat of widespread retailer failures on landlords and their lenders, the government announced Tuesday that it would relax planning laws, making it easier to convert stores for other uses.

Many owners of stores and malls are already looking at ways to convert them into apartments or even warehouses to capitalise on the explosion in online shopping – anything but stores. — Bloomberg

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