BNP AM

The official blog of BNP Paribas Asset Management

Can’t pay, won’t pay!

The pandemic that has swept the globe has resulted in an astounding change in the outlook for the economy, and consequently the world of real estate. Listed real estate stocks have fallen sharply. Property owners are facing up to the hard reality that some tenants can’t pay, want to defer, or won’t pay their rent.

Disruption, distancing and deferring

The demands for rent deferment, rent relief and rent reductions have been growing across the world. However, there is little consideration for the difficulties facing property owners from rent non-payment. This issue has been front and centre, though, since countries started imposing social isolation.

The effects have varied across geographies and sectors. However, in the US and Europe, and in leisure and retail property in particular, the impact of growing rent arrears and debts on balance sheets has been significant. The consequences will be challenging for many companies, particularly retail property owners, with few governments so far offering relief.

Easing the pain?

Helped by massive fiscal and liquidity stimulus from governments and central banks, particularly in the US, markets including real estate investment trust (REIT) markets have rallied from their March lows and have stabilised comparatively. Global real estate stocks have risen by 21% since 23 March (in EUR). And, in parallel though, the risk to rental streams has become the focus of companies, investors and, increasingly, lenders.

Exhibit 1:

Governments have varied in their responses. The Trump administration has announced massive stimulus at a whopping 35% of GDP. The eurozone, despite the best efforts of the ECB, will allocate a meagre 14%. However, it’s clear at this stage of the pandemic that the authorities are preparing the public for an extended period of disruption to social and economic life.

Logically, the difference in stimulus measures will determine the speed of the economic recovery and, ultimately, the impact on the demand for real estate. Nonetheless, as governments have encouraged businesses and individuals to discuss rent terms with their property owners, they have not assisted property owners who in some cases faced shortfalls of up to 70% of their April rent.

Bad debts and bad citizens

Rent nonpayment caught much of the industry unawares. On 1 April, US shopping centre owners had received 50-60% of their rent, while UK retail property owners had collected around one third. Residential property owners were more successful. Industrial property owners were expected to fare much better, but even they reported that some bad actors were trying to avoid paying rent, even though they could afford to pay.

Relief in sight?

The number of retailers requesting rent deferrals, rent holidays or withholding rent will increasingly place the spotlight on the difficulties property owners have in meeting their own obligations. A number of European REITs have already suspended their dividends as investors and lenders look at balance sheets and debt covenants.

However, it’s not only retail that is affected. Office property owners, which typically have longer leases, also face issues. (I will cover this in my next blog post.)

There are always relative winners and losers in any sector, giving investors the opportunity to choose property types, tenant exposures and balance sheets to invest in. Clearly, in a world of rent payment uncertainty, companies with weak balance sheets and tenants will have more challenges in the months ahead than those with solid finances.

The title of this blog Can't Pay? Won't Pay! refers to a political comedy originally written in 1974. Author Dario Fo rewrote it to capture the impact of the financial crisis on society in 2008/2009.

Perhaps if he were still alive, he would be considering another rewrite as the latest global crisis affects both human and business behaviour as well as the wider economy.


The play Non Si Paga! Non Si Paga! was originally written in Italian by Dario Fo in 1974.

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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