Shopping centre owners defend high rents

Calls by retailers for a review of the current rental-cost model in Australia as well as for more regulation are not supported by Australia’s biggest shopping centre developers. 

Market forces are driving high rents, the Shopping Centre Council of Australia says in its submission to the Productivity Commission’s inquiry into the retailing industry. 

“Retail rents are the product of market forces, and there is no justification for additional regulation,” the SCCA says. 

The collapsed REDgroup business, owner of Borders and Angus & Robertson book stores, is among those calling for a review of rent models put in place by landlords. 

It identified high rents as a key challenge facing Australian retailers. 

Similarly, in its submission, Myer says Australian retailers pay higher rents than retailers in all the other major countries in the world, in addition to significantly higher infrastructure costs and taxes. 

“As a result, our cost of doing business is higher, and it is harder for Myer and other Australian retailers to compete on a world scale,” Myer’s submission says. 

Such pleas are unlikely to draw much sympathy from the likes of Westfield, Centro and Stockland, all of whom are members of the SCCA. 

According to the SCCA, the high rents charged reflect the “demand for space, the high cost of land zoned for commercial and retail purposes and the high cost of development, construction and maintenance”. 

This high cost, it says, is balanced by “retailers in shopping centres generally being more profitable, based on the much higher turnovers achieved”. 

It also defends the high cost of rents relative to other first-world countries following the April Global Retail Marketview report by CB Richard Ellis, which ranked Sydney as the third most expensive prime retail rental market, with Brisbane and Melbourne ranked eighth and 10th

In its submission the SCCA admits that “occupancy cost ratios in US shopping centres are lower than in Australian shopping centres (although not by as much as is commonly claimed)” but says this is “mainly because the amount of competing retail space in the US is around twice that in Australia, on a per capita basis”. 

The SCCA has called for regular reviews of retail tenancy legislation with the aim of removing “unnecessary and counterproductive regulation”. It says a “thorough analysis of costs and benefits” should be undertaken before additional regulation is imposed. 

The SCCA says the Australian retail leasing industry “is very highly regulated by world standards, with substantial protections established for retailers”.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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