Retailers pay more for rent, but are ready to pack-up and go

In a further blow to the already beleaguered retail industry, sitting tenant rent prices soared in medium and large shopping centres over the past year and prices are predicted to continue to climb.

The Sitting Tenant Renewal Report by Sydney-based consultancy Leasing Information Services (LIS) collated rental information from shopping centres mainly in New South Wales and Queensland.

The data indicated rent increased for retailers upon renewal in 2012 by an average of 2.4% and more shopping centre renters are taking out short-term leases, according to a report in The Age.

A short-term lease can be on a month-to-month basis or between one and two years.

Brian Walker of the Retail Doctor Group told SmartCompany the markedly higher number of short leases were representative of the retailers’ market sentiment.

“This reflects a short-term perspective, a lower level of confidence, whether that’s valid or not,” he says.

Australian Retailers Association executive director Russell Zimmerman says the retailers who are renting on a monthly basis are likely to be negotiating the terms of their lease.

“It’s a very destabilising period for retailers,” Zimmerman says.

“Essentially what it means is it becomes an uncertainty and quite often the business is your superannuation and it’s a very unsettling time for retailers.”

Walker says rent increases will most greatly impact small retailers.

“Of course it puts great pressure on profit and sales, which in turn can damage the brand of the business by putting increased pressure on cashflow.

“It tests their negotiating skills – bigger retailers have always had greater negotiating powers,” he says.

These figures come as ANZ released data earlier this week showing a slow December quarter for small businesses, posting 0.9% fewer sales than the same time in 2011.

The results from the ANZ Small Business Sales Trends report for December indicated weakening growth rates in the final months of the year.

Combined with high rent costs, small retailers are worried.

With lower cashflows, Walker says some businesses are forced to cut back on costs and lower stock prices to increase sales, “ultimately undermining the value of the business”.

The report found fees for services operating in shopping malls had increased most substantially, with rent for hairdressing salons and banks increasing by 10% and 7% respectively.

Walker says this reflects a changing in location of services, such as banks, within the centres.

“When banks have entered into shopping centres they’ve always typically been on the outside, facing car parks and such.

“The banks have learnt a lot about retailing and they’ve now taken prime positions in the malls and are paying prime rental costs as a consequence,” Walker says.

Another key finding of the report was the dominance of the bigger shopping centres.

According to LIS figures, rent at medium centres increased by 9.8% and 9.2% at large shopping malls.

“The rent in some centres is going down, but particularly in the larger centres it is not,” Zimmerman says.

LIS director Simon Fonteyn told The Age figures for medium and big centres are positive.

“The data shows a clear trend of bifurcation – the bigger and better centres are enjoying rental and sales growth while the others are flat or even negative,” he says.

SmartCompany contacted Fonteyn for further comment but he was unavailable prior to publication.