Commercial tenants in the UK have paid just a fifth of the rent they owe for the latest quarter, raising concerns about whether businesses will be able to pay off arrears built up during the pandemic.

A fresh wave of Covid-19 restrictions in the UK over winter hit retailers hard, reversing an improving picture for rent collections. Retail businesses only paid 15 per cent of their rent bill, according to commercial property management platform Re-Leased, down 7 percentage points on the previous quarter.

Commercial rents are typically paid quarterly and in advance, and payment was due on March 25 for the period until June 24. Rent payments across all sectors at the start of this quarter were 21 per cent of the amount owed, down from 27 per cent for the quarter before.

The latest rent haul is expected to pick up in the coming weeks as more tenants pay. Sixty days after the previous quarter payment date, for example, commercial tenants had paid 74 per cent of the rent they owed.

But in the sectors hit hardest by coronavirus, rental income is likely to remain far below normal levels. “Many of our landlord clients are still negotiating rent that was due in March last year,” said Caleb Dunn, commercial analyst at Re-Leased. “There is light at the end of the tunnel as restrictions ease, businesses collect more revenue and rent collections increase, but normality is still a way off.”

Commercial property tenants built up rent arrears of £4.2bn between March and December last year, according to research from Remit Consulting. It is not clear how businesses that have suffered sharp falls in income during the pandemic will begin to pay off the debts they have accrued.

Tenant groups are calling for a compromise between businesses and landlords. “This isn’t just about rent arrears, it’s about livelihoods on both sides of the equation,” said Peter Bell from the Commercial Tenants Association. “We don’t want a continuation of adversarial relations between landlords and tenants which a one-sided solution would fuel.”

“With [Coronavirus Business Interruption Loan Scheme] debt and VAT deferment payments looming, businesses won’t be able to pay off all their rent debt, and so we need a mediated, government-led solution that is equitable and sustainable for both landlords and tenants.”

Landlords have also been hurt by plunging rental income weighing on commercial property valuations in the past year, particularly in the retail sector. Hammerson, which owns shopping centres including the Bullring in Birmingham and Brent Cross in London, collected £158m in rent in 2020, half its 2019 tally. The company’s portfolio of malls lost almost £2bn in value over the year.

As arrears have grown, many landlords have waived or deferred payments and are increasingly rewriting lease terms to provide struggling tenants with more flexibility. Melanie Leech, chief executive of landlord trade group the British Property Federation, said most landlords and tenants were working well together but waivers and deferrals had contributed to the low take.

However, she added, “these figures also show the continuing scandal of financially sophisticated, cash-rich businesses who are withholding payment at the expense of small landlords, pensioners and savers”.

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