In this time of economic uncertainty Bisnow are running a new, twice weekly, webinar series to provide advice and information from the experts. The first of which was held 2 April and hosted by Mike Phillips, UK editor of Bisnow, featuring our Head of Lease Advisory Richard Russell and David Bulcher, Chairman of Bulcher Philips.
With quarter day rent having been and gone the speakers delved into discussion around the current situation for Tenants of the hospitality, leisure and retail sectors. Revenue has plummeted, or is non-existent for these industries, given the recent government order to close. Many closing their doors up to 2 weeks before the government order. Governments are providing aid to these companies in the form of subsidies and are reducing the number of redundancies with the implementation of the furlough programme. Although these schemes are making a positive impact, these firms still have substantial outgoings and at this early stage, it is impossible to tell the extent of which this government aid will help.
The property industry typically runs on a 3-month cycle in terms of rent payments. This is the same length as the governments ban on Tenant evictions. Therefore, many are speculating this will only result in the same situation presenting itself in 3 months’ time. Without revenue for 1 or 2 months, there will be no profit, and these companies will soon be trading negatively.
Deferrals are great but if rent becomes 50% higher over the next three months, it becomes unviable when you’re already depleting your cash reserves on other outgoings. This will undoubtably result in many companies falling into administration.
Many Landlords are receiving pressure from Lenders who won’t delay interest payments, meaning Landlords can’t afford to not receive rent. If this doesn’t change, there is going to be an issue that could cause the market to collapse like a house of cards. We need Lenders to be generous to help them through this problem, so Landlords can help their Tenants. Ultimately the Landlord wants their Tenant to survive and be profitable to pay rent in the future, the result of which being the Lender receiving their interest payments from the Landlord. It is also imperative that Landlords make their intentions known, as it is crucial for Tenants to be able to plan ahead financially in such uncertain times. As Richard highlighted, 62% of all businesses don’t have the cash to get through 3 months. Therefore ‘the most important thing for any company is to hang on to any cash that they’ve got left to survive the next few months and then reach an agreement with the company’s creditors to survive beyond that’. (David)
London has one of the best restaurant wealth’s in the world. However due to its heavy dependency on tourism, it may face a longer recovery period than other areas. It is suspected that when the lockdown is lifted, social distancing will continue to limit potential earnings for many businesses. Tables will have to be further apart, potentially halving the capacity of restaurants. Richard highlighted that we can be sure that the hospitality, leisure and retail industry will return to how it was. However, it is how our Lenders, Landlords and Tenants behave right now, that will determine how long the recovery takes.
Finding a tripartite balance between Tenants, Landlords and Lenders, with affordability on all parts is the only way all members will survive. If this is not achieved, the prospects are too dire to contemplate.