London Landlords Offer Rent Relief as West End, City Darken

(Bloomberg) -- Two of central London’s biggest landlords are planning to offer tenants further rent relief as property firms brace for another blow to their income after the easing of some lockdown restrictions was reversed.

British Land Co. and Shaftesbury Plc are looking to extend support for shops and restaurants that face a customer retreat just as they were slowly getting back on their feet, according to people familiar with the matter, who asked not to be identified because the details are private. They’re responding to Prime Minister Boris Johnson’s decision to close restaurants and bars close earlier from Sept. 24 and encourage employees to work from home.

The moves are an early indication that the U.K.’s biggest commercial real-estate firms may struggle to rake in rental payments for a third straight quarter, as the government enacts new measures to halt the virus.

“The new restrictions will hit areas like the West End hard, particularly restaurants and bars dependent on high footfall from office based workers or tourists,” Bloomberg Intelligence senior analyst Sue Munden said. “This may limit their ability to pay rent, barring new support measures from the Treasury.”

Shaftesbury, which owns properties in Soho, Chinatown and Covent Garden, is allowing tenants to defer quarterly rent for a third straight quarter, said the people. British Land, part-owner of the sprawling Broadgate office and retail complex in the City of London, will likely extend support to its smaller hospitality and shop tenants for the next quarter, though no firm decisions have been made, said separate people familiar.

Spokespeople for Shaftesbury and British Land declined to comment.

Some of London’s biggest landlords have waived and deferred rent for struggling retail and restaurant tenants since the pandemic locked down cities from March, while urging larger and well capitalized occupiers to pay. The U.K.’s retail crisis and growing doubts about companies returning to the workplace has seen the market values of Land Securities Group Plc, British Land and Shaftesbury slashed by almost half this year.

Can’t Pay, Won’t Pay

Landlords have already endured two quarters of meager rent collection as the lockdown and a temporary ban on evictions ensured many retail and hospitality tenants couldn’t or wouldn’t pay. Government incentives to get people back to work and into restaurants over the summer had raised hopes that September rent collections would be healthier. The latest tightening, together with an extension of the eviction ban last week, have damped expectations.

“In the near term, densely populated transit-dependent markets are certainly challenged,” Julie Whelan, global head of occupier research at broker CBRE Group Inc., said during a Q&A event hosted by Bloomberg News on Tuesday.

Click here for the transcript of Bloomberg’s Future of the Office event

U.K. commercial property firms have so far collected about 68% of the rent they were due in June, according to data issued Wednesday by Re-Leased. That’s up from an initial 18.2% that was collected on the due date.

Shaftesbury has said it expected to collect only around half of rents due from April to September. The firm took a hit to the value of its portfolio earlier this year, with its West End holdings particularly vulnerable as workers and tourists stayed away. Its focus on small independent stores and restaurants in had previously been a source of strength during the retail crisis.

©2020 Bloomberg L.P.