Tenant failure risk as companies try to trade out of recession, Cluttons warns

In its Commercial Property Outlook report the consultancy says that the biggest worry for landlords at the moment is tenant failure – which brings with it not only the loss of income, but also the potential added cost of empty rates until a re-letting takes place, possibly at a lower rent than before.

“At this point in the cycle some companies may overtrade as they try to emerge from the recession which can result in a cash flow crisis if working capital gets soaked up with new orders,” the report said.

“Unless prompt payment is received then the squeeze on cash-flow gets tighter and businesses find it harder to pay their bills, including their quarterly rent, thereby putting landlords’ cash flow under pressure.”

Fiscal tightening and the weakness of the banking sector are also continuing to put a strain on all property markets, the report said.
Offices in Central London are outperforming those in areas such as Bracknell, Basingstoke and Gatwick.
Due to the shortage of space, average rents in the City rose from a low of £36 per sq ft last summer to around £55 per sq ft with rent free incentives amounting to two and a half years.

The central London market has turned round quickly, unlike the rest of the UK where rental values have been falling in recent months, although are expected to remain static for the rest of the year.

On a positive note, the investment markets are continuing to recover. In the industrial market the IPD Industrial Index showing capital growth of 1.8% for the three months to May 2010.

In central London shops continue to do well, with record rents expected to be achieved in Oxford Street and Bond Street.