What do retailers fear even more than the R number? The rent

The reopening of thousands of stores, combined with May’s 12% rebound in sales, has provided some respite for Britain’s’s battered retailers, but the high street crisis is far from over – not least because a monster £2.5bn quarterly rent bill falls due this week.

Shop landlords traditionally collect rent in four equal chunks spread throughout the year, and Midsummer Day on Wednesday is the next so-called “quarter day”. The last one, in March, was a red-letter day for all the wrong reasons, with Primark and JD Sports among the big names that didn’t pay their rent as the country went into lockdown.

At best, about half the rent due in March was handed over and property experts think June’s take will be even less, as cash-strapped retailers take advantage of a temporary ban on evictions for non-payment of rent – which the government has extended to the autumn – to conserve cash and negotiate new deals with landlords.

“The amount of rent paid by retailers will be the lowest it’s ever been,” says Jonathan De Mello, head of retail consultancy at property advisory firm Harper Dennis Hobbs. “Retailers will take the opportunity not to pay because, frankly, they haven’t had any cash flow, so why would they? Some have had no money through their tills for months.”

The growth of online shopping meant the high street was under pressure before coronavirus struck, but the upheaval it has created now threatens the survival of thousands of retailers and the millions of jobs they support. Around 1.6 million retail workers have been furloughed – more than in any other sector – in an industry newly hobbled by the social distancing constraints placed on stores.

The likelihood is that high streets and shopping-centre visitor numbers will be depressed for months to come, be it for health or financial reasons as recession looms – leaving managers to assess whether some stores will ever be viable again.

Long before coronavirus struck, the asset manager Fidelity International predicted that rent on the high street and in shopping centres needed to fall by up to 40% if bricks-and-mortar retailers were going to have a future in the internet age.

Adrian Benedict at Fidelity says the health crisis has hastened that correction. “Retailers that continue to operate out of these locations will be demanding lower rents in return for lease extensions or the like, or you’re going to see increasing numbers of businesses going into administration. That is the sad reality. It is no longer a choice, it is a necessity.”

There are already signs that, after months with stores out of action, retailers are running out of cash. The upmarket fashion brand AllSaints – which says it was doing well before the crisis – is the latest high street name to use an insolvency procedure known as a company voluntary arrangement (CVA) to wring rent reductions from its landlords and stave off administration. There have already been thousands of high street job losses, with buyout deals brokered for names such as Oasis, Warehouse and Cath Kidston, all involving the jettisoning of their stores.

The scale of the crisis means the British Property Federation is expecting only around a quarter of the June rent bill to be paid – a lowly figure that will have a domino effect on property firms and their investors, many of whom manage pension-fund cash.

“In private, many asset managers are terrified about what might come to pass on June quarter day and fear it could be worse than in March,” says Steph Yates, a senior consultant at Remit Consulting, which tracks rent-collection data. “It is fair to say that some asset managers are fearing a large number of insolvencies across their portfolios.”

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