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UK retail landlords get some comfort from Q3 rent intake figures

Beleaguered U.K. retail landlords collected 22% of rent due for the third quarter on June 24, according to Colliers International, the same as paid the previous quarter and higher than some in the industry had forecast.

The 22% of rent paid by U.K. retailers compares to 36% paid in the commercial property sector as a whole, analysis of the retail property portfolio under the real estate services firm's management found.

Many in the industry had forecast record low rent collection from retailers on "Watershed Wednesday," as the quarterly collection day had been dubbed, due to the government imposed lockdown from late March to June aimed at delaying the spread of COVID-19. Stephen Springham, head of retail research at real estate services firm Knight Frank, told the Financial Times earlier in the month that retail landlords might collect between 10% and 20%.

"Today's figures are welcome relief for landlords who had feared that payment rates would be lower as many retailers have been unable to trade at this time," said Mark Jarrett, head of property management at Colliers International UK. "Now that non-essential shops have been able to reopen and more businesses will be opening from the July 4 we can expect a more favorable outcome this quarter."

Landlords normally expect to receive 95% of their rents and charges on time, and only struggling businesses will default, Jarrett added. By the end of the last quarter retailers had paid a total of 62% of their rents, Colliers said.

The COVID-19 lockdown has severely exacerbated the turmoil besetting the U.K. retail sector in recent years. Retailers have increasingly struggled to pay rents due to increased competition from a rapidly growing e-commerce sector and a weak economy curtailing consumer spending growth.

Retailers' travails had led to many businesses renegotiating their leases with landlords. This has included switches to monthly payments instead of quarterly, Colliers said, a trend that has increased during the COVID-19 crisis. Consequently, more rents and service charges are likely to be recouped in the coming weeks, Colliers added.

The better than expected rent collection data for the third quarter comes as the U.K.'s largest owner of shopping centers looks to be entering administration. Intu Properties PLC announced June 26 that talks with its creditors to agree a debt standstill were likely to fail, which would force the listed property company into administration and could see some of its properties close.

The U.K. retail sector's troubles in recent years have had a particularly painful impact on Intu, which has seen its share price fall from more than £3.50 five years ago to below 5 pence in recent weeks.

Colm Lauder, real estate equity analyst at stockbroker Goodbody, said the coming quarter will be crucial in determining the prospects for other major retail landlords. "It all depends on how quickly tenants start paying rent again and how quickly things start to stabilize," he said. "The challenge is more about the next quarterly rent collection at the end of September. If that is equally poor, that's probably not priced in at this stage and that will pull things back."