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The Lease Forfeiture Moratorium, Zombie Businesses and the Crisis to Come

In a recent article for MCA Insight, Restaurant Property Agent and industry expert Ted Schama highlighted how the Government’s recent extension to the lease forfeiture moratorium doesn’t really work for landlords and operators alike.

The only winners, he argues, are “zombie businesses” – those operators whose companies probably weren’t viable before the pandemic who are taking advantage of COVID-19 support measures while they’re on offer, before folding or entering a CVA to reduce their debt liability.

 This is certainly true and, as of June this year, over £5bn rent was owed by UK retail tenants (British Retail Consortium), with 33% of rent not paid on June rent day (8% down on the same period in 2020).


And so the picture looks pretty grim right now and, as Schama put it, “every extra day [of the lease forfeiture moratorium] makes the debt mountain that much bigger”.

 

One of the biggest issues with the extended lease forfeiture moratorium, however, is the artificial bottleneck it has created in the real estate market.

"The British Retail Consortium said two-thirds of UK retailers were at risk of legal action on at least one of their stores..."

FT.com, May 30 2021.

The Pressure Behind the Bottleneck

Data from the most recent RICS Commercial Real Estate survey indicates that demand, particularly for retail, is higher now than it has been since 2012. However, there is much less retail stock on the market right now because the usual turnover of tenants is (by and large) stifled by the moratorium. One London-based agency that we spoke to (who didn’t want to be identified in this post) told us that they currently have about 10% of the instructions they would expect for this time of year.

"In the simplest of economic terms - right now, supply is just not able to meet demand."

In the simplest of economic terms: right now, supply is just not able to meet demand.

At the same time, and contrary to the usual supply/demand dynamic paradigm, scarcity of supply is not being met with an inflation in price. The reason for this is that scarcity has been artificially created by an unprecedented market intervention by the Government.

Because of the broader economic picture, occupiers aren’t responding to the scarcity of stock with higher offers. In fact, quite the opposite is true. One restaurateur we spoke to, who was ‘between spaces’ when the pandemic hit and (for obvious reasons) hasn’t rushed into a new lease over the past 18 months, told us “we’ve been offered relatively favourable rents on short leases in prime locations, but with no guarantee of how rents will settle at the end of the initial term, we’re just not willing to take the risk”. This, coupled with the continued threat of additional lockdowns and interrupted trading, makes the prospect of signing a lease quite challenging for all but the most bullish of operators.

So the market is in deadlock – unprecedented demand from occupiers and some of the lowest retail stock levels on record. Enquiry levels, as measured by online marketing portals like RightMove and Zoopla, are soaring and Agency teams, many of which have said goodbye to valued and valuable team members over the past 18 months, are more stretched than ever.

So what's happening to all this un-met demand?

I recently came across the below, posted by a frustrated operator on LinkedIn. He had enquired with a number of commercial agencies and hadn’t received any response.

Since it’s not in any agent’s interest to leave an enquiry unanswered, there must be something else going on here. With so many enquiries coming through for every individual property, it’s no wonder that some go unanswered or fall through the cracks. With few properties to market directly, meanwhile, it’s harder than ever for agents to capture occupier requirements.

 

 

At Qualifyr, we’ve watched this situation unfold over the last 18 months with interest. One of the things we’ve been doing is building a database of occupier requirements from across the independent retail and leisure sectors – businesses who are looking for new spaces but don’t know how to go about it, whose enquiries are not being captured anywhere else because of the current state of the market. Coupled with our extensive range of acquisition agent requirements and mediated by our industry-leading matching algorithm, we’re ahead of the game for when the market unfreezes and more properties become available.

 

 

As well as our daily-growing database of occupier requirements, Qualifyr allows agencies to connect their own marketing activity directly to the platform. However you’re currently generating enquiries for space – from social media to property portals – our automatic requirements form gathered detailed, technical information from the prospective tenant and stores it in a secure, private database just for you and your team.

 

 

It’s our opinion, based on the data we’re capturing daily on the platform, that the agencies who are able to look ahead to the end of the moratorium and work proactively on building their occupier requirement database, will be the ones that will come out of this period the strongest.

 

 

Want to find out how Qualifyr can help you just do that? Book a demo below, receive a 1-month free trial plus the next 20 agencies to sign up will receive access to the product for a fixed subscription of £200 per month for the whole agency (usually £99 pm per user).

 

In a recent article for MCA Insight, Restaurant Property Agent and industry expert Ted Schama highlighted how the Government’s recent extension to the lease forfeiture moratorium doesn’t really work for landlords and operators alike.

The only winners, he argues, are “zombie businesses” – those operators whose companies probably weren’t viable before the pandemic who are taking advantage of COVID-19 support measures while they’re on offer, before folding or entering a CVA to reduce their debt liability.

 This is certainly true and, as of June this year, over £5bn rent was owed by UK retail tenants (British Retail Consortium), with 33% of rent not paid on June rent day (8% down on the same period in 2020).


And so the picture looks pretty grim right now and, as Schama put it, “every extra day [of the lease forfeiture moratorium] makes the debt mountain that much bigger”.

 

One of the biggest issues with the extended lease forfeiture moratorium, however, is the artificial bottleneck it has created in the real estate market.

"The British Retail Consortium said two-thirds of UK retailers were at risk of legal action on at least one of their stores..."

FT.com, May 30 2021.

The Pressure Behind the Bottleneck

Data from the most recent RICS Commercial Real Estate survey indicates that demand, particularly for retail, is higher now than it has been since 2012. However, there is much less retail stock on the market right now because the usual turnover of tenants is (by and large) stifled by the moratorium. One London-based agency that we spoke to (who didn’t want to be identified in this post) told us that they currently have about 10% of the instructions they would expect for this time of year.

"In the simplest of economic terms - right now, supply is just not able to meet demand."

In the simplest of economic terms: right now, supply is just not able to meet demand.

At the same time, and contrary to the usual supply/demand dynamic paradigm, scarcity of supply is not being met with an inflation in price. The reason for this is that scarcity has been artificially created by an unprecedented market intervention by the Government.

Because of the broader economic picture, occupiers aren’t responding to the scarcity of stock with higher offers. In fact, quite the opposite is true. One restaurateur we spoke to, who was ‘between spaces’ when the pandemic hit and (for obvious reasons) hasn’t rushed into a new lease over the past 18 months, told us “we’ve been offered relatively favourable rents on short leases in prime locations, but with no guarantee of how rents will settle at the end of the initial term, we’re just not willing to take the risk”. This, coupled with the continued threat of additional lockdowns and interrupted trading, makes the prospect of signing a lease quite challenging for all but the most bullish of operators.

So the market is in deadlock – unprecedented demand from occupiers and some of the lowest retail stock levels on record. Enquiry levels, as measured by online marketing portals like RightMove and Zoopla, are soaring and Agency teams, many of which have said goodbye to valued and valuable team members over the past 18 months, are more stretched than ever.

So what's happening to all this un-met demand?

I recently came across the below, posted by a frustrated operator on LinkedIn. He had enquired with a number of commercial agencies and hadn’t received any response.

Since it’s not in any agent’s interest to leave an enquiry unanswered, there must be something else going on here. With so many enquiries coming through for every individual property, it’s no wonder that some go unanswered or fall through the cracks. With few properties to market directly, meanwhile, it’s harder than ever for agents to capture occupier requirements.

 

 

At Qualifyr, we’ve watched this situation unfold over the last 18 months with interest. One of the things we’ve been doing is building a database of occupier requirements from across the independent retail and leisure sectors – businesses who are looking for new spaces but don’t know how to go about it, whose enquiries are not being captured anywhere else because of the current state of the market. Coupled with our extensive range of acquisition agent requirements and mediated by our industry-leading matching algorithm, we’re ahead of the game for when the market unfreezes and more properties become available.

 

 

As well as our daily-growing database of occupier requirements, Qualifyr allows agencies to connect their own marketing activity directly to the platform. However you’re currently generating enquiries for space – from social media to property portals – our automatic requirements form gathered detailed, technical information from the prospective tenant and stores it in a secure, private database just for you and your team.

 

 

It’s our opinion, based on the data we’re capturing daily on the platform, that the agencies who are able to look ahead to the end of the moratorium and work proactively on building their occupier requirement database, will be the ones that will come out of this period the strongest.

 

 

Want to find out how Qualifyr can help you just do that? Book a demo below, receive a 1-month free trial plus the next 20 agencies to sign up will receive access to the product for a fixed subscription of £200 per month for the whole agency (usually £99 pm per user).

 

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