Store closures to have minimal impact on retail rents: Report

Retail rents are expected to remain stable in 2012, according to Colliers International, despite store closures by major retailers including Dick Smith, Billabong and Specialty Fashion.

Up to 100 Dick Smith stores in Australia and New Zealand face closure, while Billabong plans to shut 100-150 stores worldwide. Meanwhile, Specialty Fashion will close up to 120 stores.

Other major retailers, including Myer and JB Hi-Fi, are seeking to exit underperforming stores, negotiate rent cuts or minimise annual rent increases to protect their margins.

Specialty Fashion, which operates chains such as Katies, Millers and La Senza, reported a 64% fall in first-half profit yesterday, and is expecting conditions to remain tough in the second half.

Specialty has closed seven stores since January this year and plans to close another 15 stores in the second half of fiscal 2012.

In its half-year review, the company said it expected to close up to 120 stores over the next three years, attributing the move to excessive occupancy costs.

Occupancy costs have risen over the past two years as slow retail sales have failed to keep pace with rental increases.

According to a report by Colliers International, occupancy cost ratios in Australia are higher than in most comparable international markets.

However, the report said Australian shopping centres have higher sales rates than centres overseas, and the lowest average vacancy rate.

In addition, the researchers said consumer spending and retail turnover is expected to increase in the coming year, which will ease occupancy pressures on retailers.

The research is in line with the latest results of the Commonwealth Bank Business Sales Indicator, which rose by 0.6% in trend terms during January.

“Sales figures are ticking up and have been for some time now,” CommSec chief economist Craig James said in the report.

“That means there is still a certain level of confidence amongst consumers – even if it is relatively weak – which is translating into spending activity.”

Separate analysis by CB Richard Ellis found the retail rental markets in Adelaide and Perth were at the low point of the cycle in the last quarter of 2011, and the Sydney and Brisbane retail rental markets were approaching the bottom.

Meanwhile, Melbourne’s retail rental market was in an upswing. Like Colliers, CBRE expects most Australian retail rental markets to remain stable in the coming year.