SMEs set for incentive blitz amid yawning retail space vacancies

Retail start-ups are being encouraged to sniff out incentives from landlords who are desperate to fill space, as established brands begin to avoid shopping centres due to high rents.

John Schroder, Stockland chief executive of commercial property, told the Property Congress on Friday retail lease incentives are at historical highs.

The Property Congress is a networking event for property professionals. This year, it was headlined by former New York City Mayor Rudy Giuliani.

Schroder said while Stockland paid no incentive on the renewal of a lease, new tenants gained a contribution to fit-outs equal to six or seven months’ rent on a five-year lease.

According to Simon Fonteyn, of Leasing Information Services, incentives could be as high as 20% if the previous tenant had collapsed and the landlord needed to fill the space quickly.

There have been countless collapses in the retail sector recently – including Angus & Robertson, Borders and Darrell Lea – which have left gaping holes in shopping centres and precincts.

In addition, some retail brands are now actively avoiding major shopping centres, fed up with the high rents and inflexible arrangements.

Among them is The Cheesecake Shop, which insists its avoidance of major shopping centres is enabling it to improve rental agreements for franchisees.

“There have been a lot of retailers in the franchising sector that have complained about the high cost of rents,” TCS general manager Ken Rosebery told StartupSmart in May.

“[But] we’re getting reductions in rents and improved terms… The type of locations that The Cheesecake Shop has are in regional shopping centres or suburban strip locations.”

“We have very few stores in the large shopping centres, so there is a different sort of relationship with the landlord and the tenant… We can keep our rents down and get good deals.”

Similarly, Retail Food Group recently flagged its intention to move its franchise brands out of major shopping centres and into standalone shopfronts and drive-through stores.

“The motivation is to develop our brands such that they can be commercially sustainable for our franchisees outside of the traditional shopping centre environment,” RFG chief executive Tony Alford told AAP.

“Drive-throughs, hole in the walls in strip sites and thoroughfares, are just a natural migration for the business.”