Commercial Real-Estate Fallout Even Douses the Queen of England

Office Workers Are Again Told to Work from Home, Retailers Don’t Pay Rents, UK Commercial Property Owners Sink Deeper into the Mire.

By Nick Corbishley, for WOLF STREET:

Crown Estates, which manages the Queen of England’s portfolio, recently wrote down the value of 17 shopping and leisure centers by 17%, cutting Her Majesty’s net worth by £552 million. As The Economist points out, this is “fairly small beer” set against the £13.4 billion valuation of the Queen’s property portfolio, which includes some of London’s toniest real estate.

But the Queen will not be left out of pocket, since her income — set at 25% of the profits generated by the Crown Estate — will be topped up with a taxpayer bailout. In fact, thanks to the Sovereign Grant Act of 2011, the overall amount given to the Queen each year in order to fund her official duties is never allowed to fall, regardless of what is happening in the broader economy.

“In the event of a reduction in the Crown Estate’s profits, the sovereign grant is set at the same level as the previous year,” a spokesperson told The Independent. “The revenue from the Crown Estate helps pay for our vital public services – over the last 10 years it has returned a total of £2.8 billion to the Exchequer.”

Any profits made by the Crown Estate are passed to the Treasury which, in turn, hands 25% of the profits back to the Queen through the sovereign grant. This year, things will be a little different. To cover the fall in value of the Crown’s Estate, the estate has struck an agreement with the Treasury that allows it to begin making “staggered” revenue payments to the government, thus keeping a larger share of the profits to itself.

It’s a nice deal if you can get it. Most other UK commercial landlords can’t, though many larger property owners have certainly been lobbying the government for support, which for the moment is not forthcoming.

Meanwhile, conditions in both the retail and office markets continue to deteriorate. The U.K.’s ongoing retail crisis and work-from-home (WFH) revolution have between them wiped out roughly half of the market cap of large REITs such as Land Securities Group Plc, British Land Company, and Shaftesbury so far this year.

Last week, the government extended its ban on evictions of commercial property tenants from September 30 to December 31, which angered some landlords who have seen the yields on their investments slide as businesses struggle to pay rent. First passed on March 26, the moratorium on evictions was an essential lifeline for many retail businesses or offices whose incomes had dropped dramatically during the lockdown.

But it also shifted financial stress from tenants to property owners and their lenders. And the longer it drags on — it has now been extended twice in six months — the more the stress grows.

U.K. commercial property firms have so far collected just 68% of the rent they were due in June, according to data issued on Wednesday by Re-Leased, after having collected only 18.2% on the due date. Unsurprisingly, retail landlords have been hit the hardest, having so far received just 60% of rents due for the June quarter, compared to 75% and 76% respectively for the industrial and office sectors.

Despite the recent frenetic efforts of the British government to undo the WFH revolution it set in motion, the UK has significantly lagged behind mainland Europe in getting workers back behind their desks. This week, the government reversed policy once again, as covid cases began surging, urging all “office workers who can work effectively from home” to do so “over the winter,” .

This is going to have a dire impact not only on the owners of office buildings but also on the shops, restaurants, bars, cafes and other struggling city-center retail and leisure businesses that depend on the custom of office workers. Many leisure and hospitality businesses are already reeling from the government’s imposition this week of a 10 o’clock curfew for bars and restaurants. The owners of these properties are also feeling the pinch.

Shaftesbury, a real estate investment trust (REIT) that mainly rents to independent retailers in London’s West End, reported on Friday that for the six months to September so far, it had collected just 41% of rent due. Ten percent of rents are expected to be subject to deferred collection arrangements; 23% are being waived and 26% remain outstanding. By the end of August, its vacancy rate had risen to 9.7% of estimated rental value, compared to 4.8% at the end of March.

As retail vacancy rates have risen, the balance of power has gradually shifted, from landlord to tenant. Even if evictions were allowed, in this crisis it will be very tough for landlords to find a replacement for an evicted tenant — which makes landlords somewhat more flexible in dealing with their tenants.

And many tenants aren’t paying their rents, either because they can’t or are choosing not to, in the hope of renegotiating the terms of their lease contract. Shaftesbury is letting tenants defer quarterly rent for a third consecutive quarter, while British Land, part-owner of the sprawling Broadgate office and retail complex in the City of London, is considering extending support to its smaller hospitality and shop tenants for the next quarter, reports Bloomberg.

It’s the main reason why fashion retailer New Look was able to secure such attractive terms from its landlords — including Landsec and British Land — in its latest voluntary insolvency procedure. By placing its store leases at the heart of its negotiations, the firm was able to ensure that 402 of its 470 stores would move to a turnover-linked model, whereby rent will be charged at between 2% and 12% of revenues. For the remaining 68 stores the firm will not have to pay rent for the next three years.

The property owners may not have liked the terms, but given New Look’s size and the huge holes its demise would have left in an already decimated brick-and-mortar retail landscape, they had little choice but to grudgingly accept them. By setting a precedent for turnover-based rents, it’s only a matter of time before other large stores begin asking for the same treatment. By Nick Corbishley, for WOLF STREET.

A struggle for basic survival and for new money to burn. Read…  Grim Summer Turns to Long Cold Winter for European Airlines as Passenger Traffic Dives Again

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  54 comments for “Commercial Real-Estate Fallout Even Douses the Queen of England

  1. 2banana says:

    Sounds like every public union pension plan in America.

    The taxpayers will always make up the difference. No matter how generous the pensions are, how bad the economy is, how many folks leave the city/state or how high taxes have to go.

    “In fact, thanks to the Sovereign Grant Act of 2011, the overall amount given to the Queen each year in order to fund her official duties is never allowed to fall, regardless of what is happening in the broader economy.”

    • Cas127 says:

      Agreed…but there are ways around this. No legal ruling can bind *subsequent* tax law.

      Once the political class pension shortfalls really start to bite the non PolClas public, we can demand/force internal redistribution within the pensions.

      Let the highest profiteers (who steered these doomed ships longest and sold out the public the most) pay the price for their decades of lies and manipulation.

    • Earl says:

      Yes pension plans, and don’t forget the subsidies for oil and gas industry, farmers, and the bailouts for all those going broke banks, hedge funds, and FREE traders.

      • sunny129 says:


        For one and ALL!

        Who is complaining and does it even matter?

    • Bobber says:

      Over generous pensions are only part of the problem. The other part of the problem is a refusal to raise state taxes. If states want to spend, they need to raise taxes. It’s simple.

      Asking the federal government and Fed to print money for them is corruption. Any federal government assistance should be in the form of loans with strict repayment provisions, so that states are forced to get finances in order.

      • 91B20 1stCav (AUS) says:

        Earl&Bobber-check, when your points are combined.

        may we all find a better day.

      • char says:

        Pension plans are part of the wages somebody earns. You can claim that their wages are to high but that should be handled at the time, not months (or years later) because then they can act with their feet and find another job. changing it years later is stealing.

  2. 2banana says:

    How many millions of tourists and billions in pounds are spent by tourists every year to see anything royal?

    Hint. Folks don’t come to London to see a WeWork office tower.

    “It’s a nice deal if you can get it. Most other UK commercial landlords can’t, though many larger property owners have certainly been lobbying the government for support, which for the moment is not forthcoming.”

    • Xabier says:

      Quite so: tourists wouldn’t have come to see Buckingham Palace or Windsor Castle occupied by President Tony Blair, et al.

      One could make a case for the Royal family, their property and works of art, etc, being more useful to the country than they have ever been.

      And frankly, given the busy schedule,hand-waving and shaking ans so on, it’s a dog’s life.

      Compare to the former Juan Carlos of Spain: utterly corrupt and often rude and uncivil, spent most of his time hunting and banging his mistresses.

      Prince Charles, too, has tried to some good with his life, through his Trust and patronage, although much mocked -unfairly.

      • Cas127 says:

        Royal apologists,

        “tourists wouldn’t have come to see Buckingham Palace or Windsor Castle occupied by President Tony Blair,”

        One word.


        Works for Disney.

        And not that different from what you have now.

        Without the billions in costs and st*nk of the 17th century.

      • char says:

        You are so right. The Kremlin is now a rarely visited tourist attraction but it would have been massive if the Tsar still ruled. And the same is true about Vienna.

  3. Javert Chip says:

    Ahhh…it’s god to be King…er…Queen; whatever.

  4. Paulo says:


    Aren’t most commercial property owners in England Conservatives? And Johnson is a con (intended) :-). What am I missing here? There will be a reckoning next election. How can this continue?

    • Wolf Richter says:


      These big property owners in the article are publicly traded REITs, whose shares are held by whoever, including many Americans that have exposure in their portfolios or pension funds to UK shares.

    • Xabier says:

      Not at all: just anyone with money -they could even be Progressive hypocrites.

  5. Frank Garbor says:

    Great news!

  6. Paulo says:


    From Axios:
    Global: Total confirmed cases as of 9:30 p.m. ET: 32,746,147 — Total deaths: 991,678 — Total recoveries: 22,588,064— Map.

    U.S.: Total confirmed cases as of 9:30 p.m. ET: 7,007,450 — Total deaths: 204,486 — Total recoveries: 2,750,459 — Total tests: 100,492,536 — Map.

    From me: Spanish flu killed 675,000 in US over a two year period. 50 million world wide. Think about it, the US is almost 1/3 of the way there, and this is an era of adequate communication and more knowledge of what to do.

    If Covid takes off, unabated as in 1918, 50 million will be easily passed before a vaccine can be delivered to all corners.

    It is not a hoax, no matter how you have been affected by lockdowns.


  7. MCH says:

    God save the Queen, may be they need to rename that to Boris save the Queen… hahaha

    C19 has accelerated everything in some ways.

  8. char says:

    Wouldn’t a turnover-based rents lead to B&M retailers pushing for web-sales?

  9. Mark says:

    Maybe the ludicrous property prices will finally come down to earth. Residential property prices in the UK as a whole are about four or five times more than any sane reality would dictate, in central London huge swathes of prime real estate are forty to fifty times more than it should be, only affordable to Russian oligarchs, Arab freeloaders, Chinese billionaires, foreign drug lords, gun runners, dictators and their nasty children all of whom live in the UK paying no taxes at all and living off the fat of the land. No British Citizen or normal resident could ever dream of buying any decent property anywhere in the country anymore. Only Citizens and tax paying legal residents should be allowed to purchase and hold residential property as far as I’m concerned, but in the absence of sane policy let’s hope for the sake of normal people the rich, who kid themselves of their just deserts but let’s face it distort the economy through monopolies, tax dodging, fraud, crime or just being born with their bums in the bitter Starr to suffer. A lot.

    Only dreaming, I know!

    • Wisoot says:

      Angelo Becciu, top Vatican Cardinal resigned a few days ago in relation to €150 million stake in Chelsea London property. Add the vatican to your list.

    • Lynn says:

      “Only Citizens and tax paying legal residents should be allowed to purchase and hold residential property ”

      Absolutely. Here in the US as well.

  10. Sound of the Suburbs says:

    The ponzi scheme of inflated asset prices.
    The wealth is there and then it’s gone.
    Real estate.
    1990s – UK, US (S&L), Canada (Toronto), Scandinavia, Japan, Philippines, Thailand
    2000s – Iceland, Dubai, US (2008), Vietnam
    2010s – Ireland, Spain, Greece, India
    Get ready to put Australia, Canada, Norway, Sweden and Hong Kong on the list.

    A ponzi scheme is a ponzi scheme.
    They collapse.

  11. Rajan Sood says:

    UK Government has also announced ‘duty free’ shopping is being done away with.
    This will hit airport retail and London Oxford Street, Regent Street and Bicester shopping Centre.
    Duty free shopping is where tourists can claim back the VAT – retail tax. if they are foreign visitors.
    Airports and London retailers have warned 70,000 jobs are at risk.

  12. Bosshog says:

    The Sex Pistols had it wrong, its God Save the Queen the socialist regime.

  13. YuShan says:

    Of course we have an extra problem now with Covid-19, but commercial real estate has been problematic way before that. If shops/ restaurants cannot pay their rent, that simply means that the rent is too high and needs to come down.

    This extend and pretend isn’t good for anybody. If the high street dies because of empty shops, property needs to be written down to their true economic value. Many shops and restaurants will be viable at again at half the rent.

    The high street shouldn’t be seen as just private money. It also has a social function: to create a city that is pleasant to live in. Boarded up shops leads to a downward spiral of further decay and increasing crime, which of course nobody wants.

    At SOME level of rent, a shop or restaurant will be viable. The fact that I see thriving street sellers tells me this. Perhaps we should enact legislation that mandates that high street properties are either occupied or sold to the highest bidder. There is always a price level where they can house a viable business.

    • Xabier says:

      Rent is one thing, but municipal taxes which treat commercial property as a cash cow another.

      They never think the poor bloody cow might die.

    • Wisoot says:

      Since the crash in 2009 I observed when it became evident that rents were excessive.

    • char says:

      A problem is that a lot of shops are getting not profitable even without rent and “user” taxes. You also have to remember that every shop will experience the same drop in costs so prices will fall. Especially in the goods without much web competition. There is also an issue with footfall generating capacity. Lower rent shops –> need less sales per square foot –> need fewer customers –> less footfall –> footfall dependent shops go poef

      Simply renting it out is not enough to save a highstreet

      About “At SOME level of rent, a shop or restaurant will be viable.”
      I have seen plenty of restaurants where the level of rent should have been HIGHLY NEGATIVE for it to be viable because staff also needs to be paid.

  14. BuySome says:

    All of which helps to confirm that worldwide, average humans really are just plain stupid enough to kowtow to a minority of jerks that could easily be disposed of in order to get on with the job of building anew. No matter where you go, there you are. [Brits…If it was not for the fact that Winston was half American, in favor of alcohol and tobacco consumption, and doggedly disposed to independence, they’d all be goose-stepping and singing Edelweiss to this very day!]

  15. CRV says:

    If you think about it’s not an unfair deal itself. The queen (Crown estate) pays 75% ‘tax’ in a good year and a lesser percentage in a bad year, when income is down. What’s unfair about it, is that not everybody else gets the same deal. If they did it would not be so bad at all.

  16. Nicko2 says:

    This is how modern monarchies operate in many countries; tax free, public bailouts; they can’t lose.

    Hopefully Canada takes a fig-leaf from Barbados and soon ditches the British Monarchy.

    • Anthony says:

      Good, then Justin Trudeau can be both Prime Minister and President….cheap at half the price….

      Be careful what you wish for… ho ho ho

    • nick kelly says:

      In 1790 the English political system was creaking with obsolescence. Power was split roughly three ways: the monarch, the House of Commons, and an Upper House, the House of Lords.

      Then it began to EVOLVE, until today, all power rests with the Commons. The Lords are advisory only and the monarch advisory if asked. (The monarch meets the Prime Minister weekly but no one knows what is said)
      The Prime Minister is selected by the party with the largest number of seats in the Commons. He, or she can be replaced by the party (E.g. Thatcher)

      The Prime Minister heads a government, he is not himself, personally a branch of government.

      The idea of a single person (root word of monarchy: ‘mono’ or ‘one’, actually being a co-equal branch has become repugnant to countries with the British Parliamentary system.

  17. Engin-ear says:

    Here we have a data-based proof that market conditions change;

    The GAAP’s mark-to-market accounting is sending tsunami to the balance sheets of RE owners.

  18. David Hall says:

    During the 2005-2008 US real estate crisis. They tore down a large shopping center in a DC suburb and built condos. The land was zoned commercial including multifamily housing.

  19. Petunia says:

    Don’t overlook the obvious, the monarchy has survived a thousand years, and we are barely holding our own. These people have a better chance of being in power in another thousand years than we do. Watch out of Harry and Meagan, they look like scouts to me.

    • Disgusted In Mount Pleasant says:

      No chance, one of the smartest moves we ever made was to let you guys win the War of Independence, we wouldn’t want to go back on that.

  20. ChrisR says:

    “It’s a nice deal if you can get it. Most other UK commercial landlords can’t, though many larger property owners have certainly been lobbying the government for support, which for the moment is not forthcoming.”

    There’s NO way commercial landlords should feel they can have a bailout, a) Because they are not the monarchy and b) They decided to take a risk knowing they “lived by the sword and also die by the sword.”

    They should rightly feel NO Government support will be forthcoming! Why? Because The Chancellor, Rishi Sunak, stated the principle himself, “…I’ve said throughout this crisis, I cannot save every business. I cannot save every job. No chancellor could.”

    Commercial Landlords are a bunch of nobodies. If they get bailed out, for WHATEVER reason, then bailouts are for everybody!

    • Beardawg says:


      A bailout is different from inverse condemnation. Govt forcing a landowner to provide sustenance to a tenant without compensation is inverse condemnation. You can’t ban evictions forever.

      If you bailout the tenants and the tenants CHOOSE to not pay rent with no consequences (i.e. eviction ban), what option is left for a landowner but to also ask for a bailout? The alternative is to allow evictions and let the market reset – what a novel concept?

    • char says:

      RICH nobodies. Which does make a bailout more likely.

  21. GK says:

    > “Any profits made by the Crown Estate are passed to the Treasury which, in turn, hands 25% of the profits back to the Queen through the sovereign grant.”

    So effectively she pays a 75% tax rate. Other billionaires need to step up their game!

  22. ML says:

    HM The Queen pays tax. The Royal Family generally does more for the UK than most. Long may she reign.

    The London oriented quoted prop cos are only pleading for government support because they are over-indebted and have pushed rents to tenant breaking point. My landlord clients, many of whom have bigger portfolios, are not that bothered, A nuisance yes but low or no gearing does wonders for sanity.

  23. ML says:

    The ‘High Street’ hasn’t died because of high rents, but because those retailers that attracted the footfall have relocated to better- configured premises in shopping centres (malls) and out of town, retail parks.

    When a retailer has a following, wherever the retailer goes customers follow.

    Retailers that latch on to the skill of attracting retailers have only themselves to blame when there is nothing to latch on to.

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