Having ripped through the high street and emptied offices, the pandemic is now threatening the Queen’s coffers.
The Crown Estate said on Friday that it expected the value of its property and its profits to be badly hit by the coronavirus crisis.
“We are under no illusions about the challenges we face,” said Dan Labbad, chief executive of the estate, which manages a sprawling property portfolio on behalf of the monarch including shops and offices in central London, retail parks in other regions and the seabed off the English, Welsh and Northern Irish coastline.
The warning came as the company announced its results for the 12 months to March 31, reporting record profit of £345m, up from £343.5m a year earlier.
In normal circumstances its profits are returned to the Treasury, which then allocates a “sovereign grant” to the Queen. The grant goes towards maintaining various palaces and official residences and in recent years has been set at a quarter of the estate’s annual profits.
This year payouts to the Treasury are being delayed so the estate can hold on to any cash it might need to plug the gap left by tenants withholding rent. So far, £87m of the £345m has been paid out.
The pandemic has prompted a fall in UK commercial rental income and is likely to cause longer-term upheaval, particularly in the retail sector.
The estate collected only about two-thirds of the rent due for the three months from March 25.
Mr Labbad said he expected to recover a similar amount for the current rental period, which covers the three months from June 24. Retail tenants in central London paid just 52 per cent of the total rent owed.
More pain was to come in the retail sector, Mr Labbad added. The wave of company voluntary arrangements — a restructuring process used by retailers to reconfigure leases or pull back from individual stores — was likely to grow. with vacancy rates on the estate likely to increase, he said.
A growing number of UK retailers are pushing for their rents to be linked to turnover rather than set at a fixed rate.
Such arrangements are uncommon but are attractive to businesses struggling to meet fixed costs when their sales are down. But the arrangements are less appealing to landlords or investors, for whom a steady income stream provides a basis for property valuations.
A move to more turnover-linked rents is likely to hit the valuation of the estate’s portfolio, which fell 1.2 per cent to £13.4bn in the year to March 31, dragged down by a 17 per cent decline in the retail-heavy regional portfolio.
“I think we are going to see downward pressure on valuations across the board,” said Mr Labbad, with retail and food and drink businesses worst affected.
The estate’s portfolio is owned by the monarchy and managed in the public interest. It does not include the Queen’s private properties, such as Balmoral Castle and Sandringham House.