COVID-19: Hospitality and retail businesses face a ‘tidal wave’ of New Years evictions | Economic news

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Hospitality and retail businesses face a ‘tidal wave’ of evictions in the new year if the government does not extend a moratorium on landlords who collect rents, have warned industry experts.

Commercial rent arrears are estimated to have risen by £ 1.5bn every quarter this year following the eviction ban imposed to cushion the pandemic’s blow on street traders.

With that expiration slated for January, business owners told Sky News that landlords who refuse to negotiate new leases despite a collapse in tenant income will force otherwise viable businesses into bankruptcy.

Landlord representatives, meanwhile, say the moratorium has allowed tenants who can afford to pay to withhold rent, leaving landowners to suffer even greater losses during the pandemic.

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A deserted Spitalfields Market – a hot spot for bars and restaurants – during Lockdown 2.0

The warning comes as Sir Philip Green’s Arcadia Group has become the hottest retailer to view the administration as a consequence of the COVID revenue cut.

Ranjit Mathrani, owner of the Masala Zone chain and gourmet restaurants including Chutney Mary in Mayfair, says landlords need to be flexible if they want tenants to survive.

“Rents are a fixed cost, on average for a restaurant, they can exceed 10% on average of the turnover, they can even be higher for some. But if your turnover is 30% of last year. [because of the pandemic], that means your rent becomes 30% of your turnover, which is almost unaffordable. ”

Mr Mathrani, director of UK Hospitality, says some owners have grown used to easy money in a rising market.

“The challenge we face with some landlords is that they’ve been in a bubble where they haven’t run out of tenants in the past, and they believe, I naively think, that if we give them back the lease they’ll get a other person willing to do it.

“At this point, they are clearly wrong. So it’s baffling why some landlords are so intransigent, and I can only blame it on the years the London rent escalator has been spinning and giving them a glimpse of endless rent growth. ”

Rent matters because it is a fixed cost that businesses had to bear despite their inability to trade or faced with drastically reduced revenues during the pandemic.

Government support has focused on helping workers, through the holiday program, and by offering subsidies, rates and VAT relief, but beyond the moratorium, rent has been left to landlords and tenants to negotiate.

The companies say homeowners should share some of the pain of the pandemic, possibly offering reduced rents based on turnover while businesses recover.

But the consequences of a collapse in rental values ​​would be significant, threatening the foundations of a booming commercial real estate market over the past two decades, especially in large urban centers.

With many properties heavily leveraged or backed by investment funds, a significant depreciation in income could challenge funding models and potentially trigger a real estate crash.

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David Abramson of restructuring specialists Cedar Dean says the rental model requires fundamental reform. He emphasizes the existence of “upward rent reviews only”, in which the rent can only increase, as a factor even encouraging pro companies to consider administration.

He said: “Things are at a very critical stage right now. I would say we are probably facing the biggest commercial real estate crash in many generations. We conducted a survey of 2,000 retail and hospitality locations which showed that over 70% of businesses face insolvency and 86% of them have to renegotiate their rental terms.

“So either they’re going to do it through an insolvency process or they’re going to do it through amicable means. So this is the key point. This is very serious. ”

The British Property Federation says landlords are suffering from the moratorium and contend that while many try to help their tenants, the administrative process is abused to evade reasonable demands.

“It’s disappointing on both sides if these conversations don’t happen and people don’t come to the table,” said CEO Melanie Leech. “I’ve seen so many examples of landlords who can’t afford it and borrow money to support the tenants themselves, trying to make deals, but their capacity is limited.

Mélanie Leech
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Melanie Leech says homeowners have their own challenges and loan obligations

“Some companies that traded during the lockdown have received government support but are not paying, and this limits the ability of owners to support those in need. Retail, hospitality and leisure are at the forefront of the pandemic and owners of these properties have seen rental arrears rise to £ 1.5 billion per quarter.

“It’s an unsustainable burden to manage, and while they try to support tenants where they can, they have their own challenges and loan obligations to meet. Very often, it’s you and me, because our pensions are invested.

Nick Rubins, general manager of garden center and discount retail group QD Retail, says something has to give.

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Nick Rubins says current system in place doesn’t make sense

“The system we have right now just doesn’t make sense and it’s not sustainable for today’s level of commerce and high street stores. If you look at a typical town, the landlords continue to charge the rents as they go back almost to 2008. [before the financial crash]. And that just doesn’t reflect today’s sales figures.

“Going forward, with the pressures of rising costs, e-commerce, living wage increases, without recognition from owners to reflect today’s revenue, it just won’t work.

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