Wednesday 15 July 2020

Property? Oh Yes, Recession is a-Coming

From a fortnight ago (and noted BTL by our reader Graeme), here's a massive straw in the wind:
Retailers in the UK have paid less than 15 per cent of their rent, according to initial figures from Wednesday’s quarterly payment date, piling pressure on landlords whose incomes have been cut deep by coronavirus ... Retailers paid just 14 per cent of the rent due, compared with 20 per cent at the same point after the March 25 payment date, leaving landlords waiting for £2.15bn in unpaid rent for the June quarter. 
BQ will hopefully illuminate this further: but even to the mere spectator this is obviously massive.  Here are a couple of aspects that occur to me.

1. Impact on Local Authorities

A number of councils have been pouring speculative money into commercial property, borrowing heavily to do so (at very low rates - for the time being).  But it's Northern Rock syndrome: they are borrowing short-dated money to invest in long-term "assets".  Yes, there's been an arb there for them - and they are propping up thier expenditure with it: but it is SPECULATION.  Nemesis awaits.  

BTW, this stupidity used to be illegal for Local Authorities.  Who let them do it?  Yep, you guessed: it was George Little Git Osborne, in 2011.

2.  Property Market Generally

We've all probably read stuff recently about how residential property is set for a mini boom.  Well, during Lockdown people have saved up all that money and repaid their other debt.  And people will be eager to move away from the dangerous city, to one of those innumerable white-flight, on-the-ringroad housing developments close to a nice county town, with green fields to look out on (until the next tranche gets built).  Oh yes, there's pent-up demand for housing out there ...

This whistling-in-the-wind is the merest bollocks.  Immediately adjacent sub-sectors within the same part of the economy ain't ever gonna be counter-cyclical.  In a big downturn, most things correlate.  It reminds me of an eejit I saw on the telly during the '07-09 Financial Crisis, interviewed on a news-piece about falling car sales.  He opined that although sales of new cars were collapsing, and prices falling, "the price of second-hand cars will go up, because people will always want to buy a car - and when they can't afford a new one, they'll go for second-hand".  

Hoho.  Nope, when there's no economic activity, there's no economic activity.   (And there's quite a few less people, too; and of course all those former granny-houses to shift.)  Not many mortgages available to the unemployed.  And even if the estate agents' windows don't reflect it just yet ... they will.



Anonymous said...

I've been watching house prices for years. Sadly I don't think this is 'it'. The world would need to split in half for a return to sane house prices.

Graeme said...

Land Securities has reported slightly more encouraging figures than those headlined but there is still unpaid rent from March.
"Even after accounting for tenant concessions and deferrals, just 60 per cent of the £109m of rent due on 24 June was paid by the end of the month, compared with 94 per cent in the same period in 2019.

Office tenants, which make up more than half of Land Securities’ rental income, paid £55m of the £68m due, while just £10m of the £39m expected from retail and specialist tenants arrived by 30 June.

Money owed for the first quarter of the year continues to lag, too. While 98 per cent of office collections are now accounted for, £30m of rent due on 25 March remains outstanding, of which just £5m related to agreed concessions and deferrals."

I bet Hammerson and the smaller propcos have had it worse. For example here is Town Centre Securities
"-- Therefore for all the cumulative rent payments that have fallen due since 25 March 2020, of the GBP11.8m rent and service charge billed we have collected GBP8.7m or 74%, with a further GBP1.1m or 9% that we have agreed to defer, totalling GBP9.8m or 83% of the amounts due

-- Of the GBP2.0m remaining (out of GBP11.8m):
o We have agreed certain concessions over GBP0.6m of this outstanding amount, in return for an improvement in the terms or length of the lease

o Of the balance of GBP1.4m, we continue to attempt to come to a fair and equitable conclusion with the respective tenants"

Not a pretty picture

Thud said...

My house went up on Saturday, had a decent offer this morning and a cash one at that, so somebody is buying and the people at Strutt seem pretty pleased with sales in general. I agreed a couple of weeks ago on another house at about 96% of asking price so something is happening in the market.

Nick Drew said...

Interesting, Thud - good luck with all that. Maybe I'm wrong. Let's all look again in November!

Thud said...

You may be right so I may take todays offer even if its a tad low, I'll see how talks go over next day and take onboard your points.

andrew said...

I think the market is segmented.

Small shops places where most of your customers can walk to you will be sort of ok. The local bakers takings are up ~25%. So is my weight. Local sainbury's is down due to distancing, but most of the other shops never had hordes at the door and so takings are recovering.

In between
not so positive

Big Warehouse Boxes
Probably ok


lower - end
Terraces in small towns where their owners have been furloughed
not so positive

... and so with a bit of a lag, all residential will fall

CityUnslicker said...

ND for me this is a really hard one to predict because clearly with huge unemployment that should feed through into lowering demand and thus prices....


house prices mainly correlate with finance availability. interest are near zero the cost of owning a house as compared to renting is more skewed than ever.


The jobs being lost, in leisure and retail, in the round are young and unskilled work. They dont own houses anyway.

However your right that a general economic decline should see prices fall. But in 2008, amid the mess of the financial crises, house prices fell 20%, for about a year or two. After a 300% increase in 8 years...

Anonymous said...

Since the whole of economics is predicated on public opinion, then how the debt overhang is mood managed will be key.

So far Boris is telling everyone it is fine. Sunny uplands await which, by inference, will solve our debt issue at a stroke. The opposition (eh?) is not rocking the boat and parliament is back to its old pantomime role, albeit in a virtual way now.

There will be pain but Boris has shown that it will be managed and kick down the line until he is safely in the HoL - which may be sooner than he planned if Gove has his way.

Just relax and enjoy the ride.

Bill Quango said...

Each crisis since 2010, has boosted online and damaged high streets and centres.

BEFORE covid. I mean just weeks before, some of the major shopping centres, were going under.
These were not your small Victorian arcades in Bournemouth or Blackpool. These were the major players. With the tier two sites. So not the very best. But the second best sites in the uk.

With Covid, I think it’s over for out of town shopping. Probably high street shopping too. Back when We were writing about it in 2010 or so, we were begging Osborne to adopt some of the measures that were being presented.

Of the rather foolish report he commissioned, HMG adopted just 2 out of 30. And those two were in the best ‘DOSAC,’ style. Things that cost almost no money. And have almost no impact.
Twenty years on, and its too late to do what could have been tried. There is less money, and even less point to attempting it.

Retail news suggests something as high as twenty percent of the March to May internet boom in sales, is from people who had never before bought anything at all online. And the articles are all suggesting that is permanent.

I doubt that it is quite what they think. But it’s is a major shift.
That info. Coupled with the war on cash, and the long lines to buy anything, single family members only. Tape and warning everywhere.
Added to the incredible wrong think of the latest ‘ Masks in shops, economic insanity,” there is little hope that any retailer will survive. Or even they will want too. It’s easier and saner and often cheaper, to just buy on line. If you work from home, one of the major major hassles to the process is removed. Having to be in to get your stuff.

T.m.lewin has gone online only. They have long been heading that way. And this crisis made that decision easier. Warehouse only required.

On other news of interest, high street banks are reported to be the hardest hit of everyone. And the acceleration to oblivion until the end of all bank presence is assured.

CityUnslicker said...

BQ - I think the mask thing will pass over. We will get used to it, it is for the long term (as in, until next year after the Spring). We will all get used to it.

Anonymous said...

I will get used to it by getting used to not going out shopping.

E-K said...

The mask thing is to satisfy the loudmouths in the media. And it won't stop at shopping. Already the Govt are having to say that there are no plans to have them in offices.

You wait.

It will be socially unacceptable not to be wearing them in the street.

The point of them is not to save lives but to cripple the government and the recovery - most of the people who want them also support the teaching Unions.


I don't know what will happen to prices but they will always feel unaffordable. The suspension of stamp duty is the last thing first time buyers need.

I've heard predicted 12% unemployment. That's more than just kids working in coffee shops - we now must include airline pilots, engineers and soon to be train drivers (I'm sure hearts will bleed.)

I expect a lot of those glad-to-be-working-from-home to be sacked soon too.

But somehow house prices will be propped up - the only game in town.

Bill Quango MP said...

A cafe, restaurant, deli, I know has put up closed forever signs.
They have had the place about three years. Made it mush better than the previously, too posh, too expensive, Chelsea high street style deli that was there.

This was not a failing business. But a business in which other family members have a butchers. Others a greengrocer. Others a bakers and cake making business.

They have all moved into ONE premises. And are mostly operating only online. Only the bakery remains separate. As bakery has been on the ascent for many years now.

The rest cut staff. Cut rates. Cut rents. Have got people used to ordering online. Used to being given an appointment slot.
It is far far more convenient for the retailer to be able to have YOU fit around them.
I see this as permanent.

John Lewis, the most successful of all had already said it was merging Waitrose and JL into one. Dumping an entire layer of management.
It had already said it was withholding landlord service charges. This was Oct 2019.
Now, heading into Oct 2020, it is doing the unthinkable. And closing stores.

As we said about the closure of Toys R Us, when the shut over Christmas. If you can’t sell toys at Christmas, and make money, You can’t sell toys at all.

Same with JL. I know if we did a post on it, many would struggle to remember if they ever set in the place. That’s not the point, JL are the best, and they are in difficulty. Those who aren’t the best are in end of days.

Anonymous said...

There is a whole sector that examines dead malls.

But will the banks foreclose on something they cannot sell. Will airlines return their planes to lessors in return for debt forgiveness. No way.

We are all stuck with the useless assets and burdensome debts via our pension funds. May as well get used to it.

Matt said...

@ Anonymous

Open a SIPP for your pension if you can. You probably won't do any worse than the casino funds anyway and you get the rush of gambling instead of them.

Main plus though, is you can avoid all the (soon to be) buggy whip makers like shopping centres.

Elby the Beserk said...


George Little Shit Osborne has moved down the road from us, to the only where the shits go in Somerset, Bruton (the people my dear, the people).

'nuff said. Likes of Osborne not welcome yer.

Nick Drew said...

Any thoughts on the Local Authority aspect ??

Scrobs. said...

Nick, 'Scroblene' here...

I was watching how the situation in Thurrock was going to pan out, and the link is here: -

There's a bit too much for me to fully understand, but as that particular part of the world has ballooned over the last twenty years, I'd suggest that plonking all that money into renewables, at this time, was going to end in tears! Of course, they didn't have Covid when they were doing all this, but they have now!

As for my Tunbridge Wells Borough, there will be lots more of the similar tears, as we watch the town centre disintegrate and retail/food offering plummets, but I'll bet there's a huge sigh of relief now that 'The Peoples' Palace'...

...isn't going ahead - much of which is coming from the fragrant Senora O'Blene, and yours truly!

As for other retail, our pub is now a shop as well as a restaurant/pub, and is becoming a huge community asset! Socks are being worked off by the owners, new staff are in place for the new 'rules' about service, and a reasonable financial result is going to be their goal!

Anyway, how the devil are you?

Nick Drew said...

I'm well thanks, Senator O'Blene - though there have been some ups and downs, same as everyone

The Thurrock thing is indeed complex, and riding for a fall (though I suppose it's just possible that solar farms subsidised by electricity bill-payers are more bankable right now than commercial property ..!)

regards to all at Scotton Pinkney

DJK said...

All very interesting. Thanks.

I remember the novelty of seeing dead malls --- and and the almost dead, or at least coughing up blood --- during the 1990 recession in upstate New York. I think the American malls we visited in the years after that always had a slightly down at heel air, with some vacant space.

Alistair Heath (I think) has a piece in the 'graph about "the business model of central London" being dead. Of course, this is right, even if the language used is a bit affected. WFH means that the vast tidal flows of well-heeled commuters are probably gone for ever. So where does that leave the millions of third world immigrants imported to man the sandwich shops and restaurants? Not to mention all the many other knock on economic effects.

One of the stupidest calls from the depths Stupid Party is the message that Boris has to force everybody back to the office to save the sandwich shop owners. Apart from the economic waste of forcing people to spend valuable time commuting, that ship has long sailed and can't be called back.

We're certainly living in interesting times.

wiggiatlarge said...

As someone who has moved far to many times, I do have a fair view of all the pros and cons of the housing market.
I am unfortunately currntly on the market, and the viewing figures are dire, it is also very noticeable that an awful lot of property is coming through from the property web sites reduced in price and are still not selling.
Even new builds that were selling two years ago like the proverbial 'hot cakes' no longer are even with all the incentives, some new build estates round here are still trying to shift units built three years ago.
In London, friends tell me that even in 'hot' areas there is not a single for sale board in many streets that not long ago were festooned with them.
Will prices fall, who knows, it should have happened after the 2008 crash but all that happened was they stagnated for awhile.
I honestly think the majority of people are more worried about their having a job after October and putting food on the table than moving house, it might not affect those with 'guaranteed jobs' in the public sector but for everyone else a different scenario is panning out, we shall see.

Nick Drew said...

I was amazed at the first Dead Mall I met: in Hannover, 2004. It was the municipal-run mall, right in the very centre, modern, good architecture (no dark rat-runs or pokey corners), next to the equally modern Rathaus which encouraged good footfall.

And yet - semi-deserted, with weeds growing in the defunct escalators. Never found an explanation (the firm I was visiting was too embarrassed that visitors would have to walk through it on the way to their offices to discuss it)

Anonymous said...

DJK - I recall some terrific zombie movies being made in closed shopping malls in the '90s era. Perhaps the migrants could be employed for that too.

E-K said...

wiggiatlarge - It could be that buyers are waiting it out for the cessation in stamp duty.

Unintended consequences of Govt promises again.

Jan said...

OT but ties in with the economics of everything and tallies with what I have been hearing anecdotally:

They can fine me next week when I refuse to wear a mask/muzzle. If enough of us do it they won't.

dearieme said...

@DJK: I agree, that Telegraph piece made my blood run cold. I instructed the offspring to read it and recommended they balance it by reading sunnier predictions.

But I must say I don't think I've seen any predictions that are both sunnier and well argued. What have I missed?

Graeme said...

The London galleries, concert halls and theatres are all closed. You won't be able to browse in the cosy book shops because of the face mask stuff. No tourism and many fewer office workers, so the outlook for restaurants, pubs, food establishments generally is bleak. There will be no reason for me to go there. It looks a grim prospect for a lot of people.

Anonymous said...


You actually admit to reading ZH.

AndrewZ said...

@DJK, @dearieme:

Is there anything at all positive for businesses in London? For some, the normalisation of WFH will be an opportunity to downsize their offices and drastically cut their fixed costs. They will also be able to drive a very hard bargain with desperate landlords for whatever office space they do still require. It will also expand their recruitment opportunities. WFH means that people who don't want to live in London or commute can still work for a London-based company. But as they won't be exposed to the capital's extreme cost of living there will be no need to offer them a London-weighted salary. A lot of businesses will be in serious trouble - especially the service sector ones which depend on the daily presence of many other workers - but some will actually turn the situation to their advantage.

wiggiatlarge said...

EK, that is possible, but and there's always a but, it is not going to affect any property over £500,000 which is a one bed roomed flat in some parts of London, even moving out to the suburbs and a 'better' quality of life requires you sell the flat first, expect a drop in prices to anything just over £500,000.

Charlie said...

It's the first 500k of ANY property sale, not just properties worth less than 500k

Effectively a 15k discount on anything vaguely desirable in London. Big headline but a drop in the ocean.

Charlie said...

The ZH story sounds like nonsense. Hospitals don't cancel emergency surgery. Ambulances don't drive around on blues and twos when there's no emergency. If there was a co-ordinated effort to silence everyone who works in the NHS (which is more than a million people), we'd be hearing about it via a lot more channels than ZH.

andrew said...

The msm leads with news on the number of deaths due to COVID-19 according to figures provided to PHE/ONS.

I prefer the Institute of Actuaries working party on this.

They count excess mortality as current - average of last 5 years by month.

This gives the total excess mortality. If you read MD in private eye, the lockdown may actually cause more fatalities than COVID-19 itself.

That does not mean that lives have been wasted / economy ruined for nothing.
If we had done _nothing_ about COVID-19 and done a sweden, our health system would have been overwhelmed v. quickly and many more would have died.

TL;DR: it is complicated, you can pick your own figures, hindsight is easy, some current 'best' will not hold that position.

E-K said...

Sweden has a CV19 death rate 112 per million less than us.

YES we did ruin the economy for nothing

YES lots more people will die of lockdown than of CV19 - I don't think I really know anyone who's had it let alone died of it but I do know of one friend/colleague my age and fit who died because of delayed surgery. Also our suicides have spiked - can't say that was due to lockdown but if Unionised doctors can put "died of CV19" on death certificates without tests...

The problem is that the whole West was doing lockdown and even the most competent of countries has taken a huge economic hit - which equates to non CV19 deaths.

Does anyone here know anyone who has died of CV19 ? And I mean OF it.

APL said...

So .... if the commercial property market is dying - companies employees working from home, indefinitely - who's paying the rents and ... in that case, who owns all the commerical property portfolios ?

Pension funds that's who.

Pensions next on the block.

APL said...

E-K: "YES we did ruin the economy for nothing"

Eh! no. The Tory party ruined the economy for nothing.

Let's make sure the blame lies where it should. Boris Johnson and his party. With the largest majority for years could have stood up to the BBC with it's wailing about 'ventilators' - don't hear about those now, or its incessant 500 people died from Covid today wall to wall demoralisation. But it didn't, the spineless shrimp caved to the BBC, AKA the national terrorist operation.

EK: "Does anyone here know anyone who has died of CV19 ? "

No. Partly because we've abandoned our elderly to the tender mercies of the NHS which has happily killed then for us.

Anonymous said...

I know someone who died of CV-19, she was in her 50s, overweight and had a few mental issues - wouldn't be surprised if she was diabetic. I also know someone mid-30s who "recovered" but has severe, debilitating neurological side effects, can hardly speak or walk.

About a dozen people we know have died this year, but only the one above of Covid. But a family member is probably going to die, because an urgent cancer operation was delayed for months.

What's with Bruton btw? It's not very diverse. Funny how they say diversity is a strength but head for leafy Whitopias like Norfolk, Somerset, Devon or Cornwall . I guess once enough of the "right sort of people" are there...and the wrong sort are in Bridgwater. Bit like the difference between Lostwithiel (right sort) and Liskeard (wrong sort).

APL said...

Anon: "I also know someone mid-30s who "recovered" but has severe, debilitating neurological side effects, can hardly speak or walk."

Yes, the road to living death is paved with good intentions.

We knew before the outbreak your odds of surviving an extended spell on a ventilator is low at the best of times.

With COVID, which causes your immune system to attack your own organs, leading to clotting. If you survive, you may well suffer significant neurological disability.