LAI0038
The COVID pandemic has had an unprecedented impact on the economic activity both in the UK and worldwide. One consequence has been the effect on the Council’s investment estate, both in terms of the income it receives from tenants and the impact on the businesses themselves, some of whom have had to temporarily cease trading. The Council has received a number of requests for assistance from business tenants occupying property or with ground leases granted by the Council. A record of these requests is being collated prior to any decisions being made about the level of rent holiday or rent free periods. In the meantime, all rent recovery is on hold.
This note provides an initial early stage an overview of the level of impact that the COVID crisis has had on the Council’s investment income. This work is ongoing and will inform both short term assistance that may be provided to various business sectors both in the next few years and in the future.
The Council maintains an extensive investment and commercial portfolio of assets that generated an income of circa £18m pa in 2019-20. The most important asset is the Council’s property investment in Manchester Airport that generates circa £10.5m pa (this is in addition and separate to any dividend taken from it’s shareholding within MAG). The Council also obtains significant income from a commercial and ground lease estate and Manchester Central.
Following early discussions with a cross section of tenants, assuming a 3 month lockdown and a further 3 month period of limited trading, the table below suggests the potential impact on rents to be received by the Council
| Estimated income (pre COVID) for 2020-21 | Estimated receivable income (post COVID) 2020-21 |
Property Investment Estate Income | £16.5M | £13.5M NB1 |
NB1 – based on enquiries to date and assumes some loss of income post 6 months from lockdown. It is likely rent received in FY 2020/21 will be considerably lower than this without govt intervention as payment plans to recoup deferred rent will extend beyond FY 2020/21.
The majority of the Council’s income from its commercial and ground lease estate comes from long ground leases; with a much smaller proportion deriving from shorter term occupational leases. It is this latter part of the estate, particularly tenants in the hospitality, leisure, retail and transport sectors making up the majority of requests for assistance received to date. Of the 47 businesses who have requested assistance, 43 are from occupational tenants. Within sectors the hospitality, retail, leisure and travel / motor industries have been most severely affected. On the basis of the total rents due this year from tenants seeming assistance, it is estimated that 35% are from the food and drink sector, 22% from leisure operators, 14% retail and 10% travel / motor related.
The table below shows the potential loss of rental income that may occur from the businesses who have requested assistance to date in relation to the estate as a whole. It assumes that for occupational tenants the Council will not collect any money for Q1 and 50% from Q2 and 50% loss of rent for Q1 and 25% in Q2 loss from tenants holding ground leases. The table below is a snapshot of the occupational and ground lease estate.
Potential loss of income – Commercial and ground lease estate (based on tenants who have sought financial assistance to date) | |||
| Rent due 2020-21 (est prior to COVID) £’000s | Loss of rent 2020-21 NB 1 £’000s
| lost rents as % of total rents 2020-21 NB2
|
Ground lease estate | 168.3 | 39 | 0.5% |
Occupational estate - Total
| 941 315 272 134 83 130 | 415 | 6.3% |
Total | 1,102 | 454 | 6.8% |
NB1 Assumes 50-100% reduction 3 months and 50% further 3 months
NB2 % of ground and commercial lease estate, circa £6.6m est income
May 2020
Impact of COVID 19 on the Investment Estate /CP/Dev/Invest/GB/5.5.2020