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Challenges and opportunities ahead in the commercial property market

Posted on: 28/07/2021

This month’s decision by GAP to close all of its 81 stores in the UK and Ireland and move its business exclusively online highlights many of the issues the commercial property market is facing.

With the increase in consumers moving to online shopping and more and more people working from home as a result of the pandemic, there are inevitable challenges ahead for landlords and tenants of retail and office space.

What’s on the horizon for the commercial property market?

Many of the government’s support measures for businesses come to an end soon, including the furlough scheme, VAT deferrals and the ban on commercial evictions.

The removal of these measures, coupled with the aforementioned market conditions means that a lot of commercial landlords, tenants, and investors will have some big decisions to make in the coming months.

The past 18 months has been the most turbulent time in living memory for commercial property landlords and tenants alike. Fiona Knight, one of our experienced Commercial Property associate solicitors, looks at some of the challenges and opportunities ahead.

The ban on commercial evictions

We can start with the biggest issue in the current market. Commercial evictions are currently suspended until March 2022.

As with the residential equivalent, this measure has been a lifesaver for thousands of commercial tenants, whose businesses have ground to a halt as a result of COVID restrictions.

Many commercial landlords, however, will have received no rental income from some of their sites for almost two years.
As we start to ‘get back to normal’, two main issues will arise:

  1. Once landlords are able, should they press ahead with evictions, knowing it may be difficult to find new tenants with the market as it is?
  2. Will tenants be able to pay their rent (and any arrears they have potentially built up) and will rates be effected?

The end of support measures

As well as the end of the ban on evictions, many businesses have been supported with the following measures, all of which end soon:

  • The furlough scheme (ending in September 2021)
  • Business rates relief (reduced in June 2021, ending March 2022)
  • Deferred VAT payments (being repaid by many businesses now)
  • Coronavirus Business Interruption Loans (interest free period ending soon)

As these measures come to an end, and businesses begin to feel the strain, many will have to decide whether they are able to continue trading. Insolvency and administration rates are very low at the moment, and it is anticipated that these will rise sharply as support measures are withdrawn.

Advice for commercial landlords and tenants as pandemic support measures are withdrawn

Landlords and tenants should be having discussions with each other well in advance of these dates in order to discuss options and make plans.

Although some landlords and tenants have worked collaboratively for mutual benefit during the pandemic, others have had difficult relations. However the opposing interests of landlords and tenants will inevitably need to be balanced to secure an acceptable compromise for both parties.

Landlords and tenants need to fully understand their existing lease terms as well as options for lease variations in the changed market so that settlements can be reached before either side look to terminate leases.

This article is a comprehensive read and includes much more information on the challenges and opportunities to come for commercial landlords and tenants.

To read the full article, click here.

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