Index Update: 2021 outlook and emerging trends for the UK Property Industry

Caleb Dunn
January, 2021

Throughout 2020, rent collection performance was watched closely across the real estate sector. It provided a sobering narrative of business and occupier performance in the UK. Our CREDIA rent collection statistics have varied significantly throughout last year, reflecting the volatility driven by varying lockdown restrictions, incentive schemes for consumers, and vaccination roll-out promises.

Much focus has rightly centred on each quarter day in the UK in 2020. Quarter day results showed an uplift in rent collection performance for the period of July through to September, testifying to improved market sentiment. However, there was a distinct drop in the month of December as the news of the inevitable abandonment of Christmas broke. After 21 days, only 60% of outstanding rent had been collected for the December quarter. Yet the cumulative effect of sub-par rent collection has not been widely discussed. 

With each quarter of sub-par performance, there is a compounding effect on the prosperity of landlords. As COVID-19 continues to ravage the country, we expect our CREDIA rent collection figures to plateau through the first quarter of 2021, as the agreements between landlord and occupiers that were arranged last year are sustained. But the impact of landlords enduring massive shortfalls in income should not be underestimated. It is highly unlikely that landlords will tolerate continued arrears, particularly from occupiers that have the means to pay but have refused to do so.

Over the course of 2020, landlords have forgiven substantial rent obligations, in part due to the fact that they had no legislative power to act otherwise. We expect that 2021 will showcase the true impact of the pandemic on the relationship between landlords and tenants as they seek to find an equitable way forward. As a consequence, there may be an uptick in vacancy rates over the course of 2021 (Occupancy on the CREDIA Index sat at 75% as 2020 ended) over the course of 2021, but this will likely be paired with an increase in rent collection. 

Alongside this shakeout, both parties may be irked by the circling rumours of an increased corporation tax and capital gains tax announcement in the March 2021 budget. At a time when landlords will be assessing their portfolios and using benchmarks such as the CREDIA Index to understand how their own assets have performed against the market average, they may also need to consider how potential taxation hikes will play a part in disposal or acquisition decisions. 

The heightened uncertainty that the alleged tax rise will bring to the first quarter will likely impact commitment levels of occupiers. We may see an increase in Potential Vacancy Risk (a CREDIA Index measure that finished 2020 on 7%), which analyses the volume of leases that are on a rolling/holding over basis. Until greater clarity is revealed by the government on their fiscal policy, the likelihood of businesses confirming decisions around their long-term future and agreeing to fixed leases will suffer. Of those firms that do pen new leases, the same macro forces are likely to influence the length of time they are willing to commit. The CREDIA Index demonstrated a small increase in Average Lease Length in the latter half of 2020, however this will likely flatten and potentially drop in the first quarter of 2021. 

Go to the CREDIA Index | December 2020

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