Don't blame us - rent is market-driven: Westfield

The Westfield Group has defended the rents it charges retailers, saying they are a product of market forces.

“Rents in Australian shopping centres are a function of a free market. Westfield and other shopping centre managers are able only to charge rents at a level that retailers are willing to pay,” Westfield has said in its submission to the Productivity Commission inquiry into retailing.

Westfield is also opposed to implementing any legislative limits on occupancy costs, quoting a 2008 Productivity Commission inquiry that concluded that “there appears to be little evidence that the current process of negotiating occupancy costs is constraining the efficient operation of the market for retail tenancies” 

The group admits that major tenants such as supermarkets and department stores have a strong negotiating position and pay lower rents per square metre than smaller retailers, but says they contribute more capital to the construction of the store, “take longer-term leases, up to 30 years in some cases, and take much larger stores”.

“Major stores bring foot traffic from which specialty stores benefit,” the group says.

In it submission, collapsed retailer REDgroup says high rents were a major factor in the failure of its book chains Borders and Angus and Robertson, labelling Australian rents among the highest in the world.

Myer also identifies high rents as a major cost in its submission to the commission, saying “in Australia we have higher rental and occupancy costs as a proportion of sales than our overseas counterparts”.

In its submission Westfield provides a table comparing average rent costs per square metre in its Australian, US and UK shopping centres, which shows that the rise in value of the Australian dollar in the last six months means Australian retailers ($1,428 per square metre) are paying significantly higher rents per square metre than retailers in the UK ($1,270) and US ($586).

However, Westfield says such comparisons are misleading given the current high value of the Australian dollar and says using the 10-year long-term average Australian dollar exchange rate ($A1 = US$0.75) shows that rents per square metre in Australia are higher than the US ($830) but lower than the United Kingdom ($1,857).

Using the long-term average to draw comparisons, Westfield says rents are a function of the availability of retail floor space in each market.

“The United States has lower rents but approximately double the floor space per capita of Australia. The United Kingdom has higher rents than Australia but about 40% less floor space per capita than Australia.

Australia, it says, “has taken the middle ground between the US and the UK in providing neither too much nor too little floor space”.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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