ALEX BRUMMER: Landlords take a brutal beating... and the recovery is not going to be easy

Amid the constant tussle between commercial landlords and retailers it is the property owners who are often portrayed as villains.

Traditional bugbears such as upward-only rent reviews play their part in this. But retailers also have had to contend with business rates, rises in the national living wage, challengers from overseas and online competition.

This was long before Covid-19 brought the whole store sector, with the exception of the grocers, to a shuddering halt.

Hammerson, owners of Brent Cross in north London, has limped its way through the lockdown. Investors have been unforgiving of the mistakes made by chief executive David Atkins. 

He marched shareholders up the hill last year with a proposed dud merger with debt-laden Trafford Park owner Intu and had to back down after market sentiment destroyed the deal.

Hammerson is going to have a post-pandemic new start with decade-long veteran Atkins shown the exit as soon as a replacement is found. The crisis has demonstrated that tenants can behave badly too.

There has been fury among big landlords at the behaviour of Boots (part of billionaire Stefano Pessina’s Walgreens pharmacy empire) for stopping rent payments when stores have been open.

Similarly, the way in which Primark summarily suspended settlement of rent charges also raised hackles given the broad spread of profitable enterprises run by proprietors Associated British Foods.

British Land (BL), owner of Meadowhall in Sheffield, has seen rent collections slump by 43 per cent. 

It recognised early on that it would need to give smaller outlets in its malls, such as coffee shops, a rent holiday.

It was a sharp reduction in the value of its retail estate which was the big driver of an accounting loss of £1.1billion in the year ending March 31. Nevertheless, it is not all gloom.

Most of BL office rents are being collected and, in spite of the switch to home working, it is still making lettings. 

Two London projects – at Liverpool Street in the heart of the City and Triton Square near Euston – are due to come on stream this year and in 2021 after pandemic interruptions.

Looking ahead, both Hammerson and British Land should benefit from having their retail assets in shopping malls rather than on the High Street.

Parking is better and space inside the malls makes social distancing easier. Developers have taken a brutal hit and restoring rental incomes, property valuations and share prices is not going to be easy.

Foley’s war

Investment manager M&G has had a rough time since it was cut loose from the Prudential. 

The M&G brand still carries kudos but chief executive John Foley has struggled with the triple whammy of suspended property funds, making sense of inherited life assets from the Pru and the punishing hit to shares from Covid-19.

In the most significant move since gaining its independence M&G has acquired the Ascentric platform from Royal London.

The deal brings £14billion of assets, held by 90,000 customers and is supported by 1,500 advice firms. 

If anyone doubts the value of platform technology they only have to look at the margins and super-normal profits made by brokers Hargreaves Lansdown and AJ Bell even in the midst of a pandemic.

The deal provides fresh opportunity to promote M&G trusts and Prufunds, a packaged product popular with advisers. But Foley will need to make sure that Ascentric is run with independence and not simply as a marketing tool for M&G.

Remarkably, even these dismal times have not dissuaded savers from riskier equity investments. 

Upmarket advisers St James’s Place rightly has suffered criticism for backing Neil Woodford funds until nearly the end, freebies for staff, clients and all-comers, and onerous management charges.

Yet there was a £810million rise in net inflows to £108.8billion last year in spite of coronavirus asset price setbacks. Remarkable!

Foodie lovefest

Britain’s grocers have adapted brilliantly to lockdown. Tesco has recruited 45,000 staff, and sales have climbed 12.7 per cent.

The biggest winners have been three of the smaller players: the Co-op, with its focus on local and rural, up 30.8 per cent, Ocado up 32.5 per cent and Iceland up 28.6 per cent.

Lidl and Aldi also have increased sales but market share has been suppressed by a lack of an online offering. This could be a turning point for an unloved UK sector.

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