Australian retail rents the highest in the world: Report

In all categories of retailing, Australian retailers pay significantly higher rents than offshore retailers in comparable markets, according to research by Morgan Stanley.

The findings will add weight to calls by newsagents and booksellers, among others, for greater market regulation of rents. Newsagents and booksellers argued for more regulation in their submissions to the Productivity Commission’s inquiry into retailing.

The investment bank compared Australian retailers to comparable ones in the US and UK with similar sales densities, rather than make what it calls “futile” across-the board comparisons.

The biggest gaps in rental costs are to be found in the speciality retail sector, where Australian retailers pay rents about three times higher (and sometimes more) than similar US business.

Westfield Speciality Retail pays the most for shop space, an average of US$1,428 per square metre, followed by Premier Investments (Peter Alexander, Just Jeans, Portmans etc), which pays US$1,202 per square metre.

In comparison, US competitor Limited Brands (Victoria’s Secret, Pink, La Senza) pays only US$421 per square metre while clothing retailer GAP pays US$424 per square metre.

A smaller but still substantial gap exists in department stores rents for Australian giants Myer and David Jones, which pay US$227 per square metre and US$206 per square metres respectively.

Only the UK’s Marks & Spencer (US$216 per square metre) pays more than Myer.

Upmarket US department store group Saks, which has its flagship Fifth Avenue store on the most expensive retail strip in the world (annual rents of US$23,888 per square metre) pays $149 per square metre, while at the cheaper end of the US market, JC Penny pays just US$47 per square metre.

In the electronics category JB Hi-Fi pays US$512 per square compared, with US-based retailer Best Buy, which pays US$288 per square metres on average.

In its submission to the Productivity Commission, the Westfield Group defended the rents it charges retailers, saying they are a product of market forces.

However, collapsed bookseller REDGroup highlighted rental costs as a major issue facing retailers, and the Australian Newsagents Federation claimed in its submission that Australia’s 1,500 newsagents are at the mercy of their landlords when it comes to negotiating rents and leasing terms.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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