Retail rents expected to fall as chains collapse

Retailers are soon to be in a better position to negotiate rental terms, according to consultant Business Development Company.

BDC director Vaughn McGuinness says the closure of book chain Borders and some Angus & Robertson stores means “quality sites are becoming available in quality centres”.

Borders stores to close this year include those in Sydney’s Bondi Junction shopping mall, the Jam Factory on Chapel Street in Melbourne, Chadstone Shopping Centre in Melbourne’s suburbs and a shop on Pitt Street Mall in Sydney’s CBD.

McGuinness expects further retail chain closures over the next 12 months, increasing the pool of quality sites available to the market.

“A correction is occurring in the rental market now that we have access to those kinds of sites,” he says. “Couple this with the planned extension and redevelopment of many existing shopping centres, we will start seeing more sites available, easing up the demand and leading to better rents.”

A report put out by Jones Lang LaSalle in April broadly agrees with this sentiment, but expects rental growth to pick up in 2012 and 2013 as retailers’ confidence picks up throughout the year and turnover growth recovers.

Jones Lang LaSalle reports that retail property demand “is still very patchy and is likely to remain so over most of 2012”.

According to the report, the potential entry of several international retailers could assist centre owners in maintaining high occupancy, but will further add to competitive pressure in the sector and may dampen rental growth potential since many international retailers are used to paying lower occupancy costs.

Overall, due to a “two-speed retail environment persisting through much of 2011”, Jones Lang LaSalle expects relatively moderate speciality rental growth of near or slightly below the rate of inflation to continue.

In addition to the closure of all the Borders book stores, the Colorado fashion group also collapsed earlier this year.

McGuinness says the closures won’t translate automatically into favourable conditions. He says retailers will need to educate themselves about market conditions and have enough options available to be able to negotiate.

He says business owners will always be at a disadvantage in terms of market knowledge, as shopping centre owners have access to tenancy schedules detailing what deals have been done with which retailers and with what incentives.

“This is why it is so important to make sure you give yourself enough options when negotiating to be able to walk away from a site if you are not getting a good enough deal,” McGuinness says. “You should have four or five alternative sites as a backup and make sure you are in a financial position to be able to relocate if necessary.”

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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