Postscript: We Got Those Algorithms!

Had to smile when this little ad popped up over one of CU's recent pieces where we have been wondering about the fate of commercial property.

Perhaps the algo detected those of the BTL comments that were upbeat!  Because let's face it, some of them weren't ...

ND

A Blizzard of Straws in the Wind

A month ago I wrote, rather unoriginally, that Recession is a-Coming, and mused on the prospects for property prices.  Lots of people pitched in BTL: well, it's a subject that affects most of us, one way or the other (or both).  Some even wondered if property might be counter-cyclical ...

Yesterday I met with an old friend, a solicitor who's semi retired.  His staple line of business these days is advising employees on settlement agreements (formerly 'compromise agreements') which when you think about it is a nice speciality:  you get paid for by the firm that is making your client redundant, so credit risk is almost zero.  And I rather imagine the content of said agreements and the issues they address are fairly standard, too.

Anyhow, for quite a while now his average throughput has been a congenial 2 or 3 agreements a week.

Last week he was sent 82 (eighty two) ...  I believe this is what is called a leading indicator.

Oh shit.

ND

Landlords should move on lease terms

One of the key areas coming out of the current Covid crisis is the frankly terminal shock to the retail and leisure sectors. There simply has been nothing like this in history to compare it to in the modern age.

Restaurants and shops will fill up again, people are desperate for some normality as mile long queues to McDonalds' as they open up is demonstrating. However, it could be months or even years until social distancing restrictions, both regulated and emotional, are relaxed. Restaurants can't make money at 50% occupancy snd neither can many shops.

Equally, retail landlords are in a big fix, June rent roll is coming up and it could be a bloodbath. As the next quarter kicks in a lot of retailers will give up the pretence of trying to come back. Better to emerge with a fresh business and new rent rates than try and limp on with the accrued debt.

But the US and Europe have an answer, the answer is that lease terms move to share of turnover rather than fixed, upwards only, rents. Share of turnover, or even share of net income, will see businesses able to operate at reduced levels, but still pay some rent. Plus when the good times return, so do the rents to the landlords.

Crisis is a time for flexibility, the UK has long be afflicted by the deformities of the rent and business rates system which has ruined our high streets and many of our once thriving retail industry. With the additional burden of Amazon and now Covid the situation is dire, but the proposal above will show a way out that shares the costs appropriately between landlord and tenant.