Costs of doing retail business sees Productivity Commission set to look closer at rents

In the June 2014 Productivity Commission interim report the Relative Costs of Doing Business in Australia: Retail Trade it notes that one of the major costs for retailers is, of course, occupancy.

However, it also suggests that the high costs may be partly due to restrictive planning.

“Occupancy costs, including rent, also account for a substantial share of many retailers’ costs of doing business in Australia. In this context, a number of submissions have pointed to what they view as unnecessarily restrictive approaches to planning and zoning by state and local governments as contributing to higher costs for retailers —both in terms of rents and compliance,” the findings note.

“The Commission previously estimated that reforming development assessment processes that apply to commercial and industrial sector applications (which includes applications for retail space) could generate net cost savings of around $240 million per year.”

With rents and other costs rising at a faster rate than capital prices and final retail prices (as can be seen in the graph), clearly this is an issue for all retailers and landlords providing their accommodation.

Source: Relative Costs of Doing Business in Australia: Retail Trade Productivity Commission Interim Report June 2014

You can see how rental costs compare to overseas below.

Source: Relative Costs of Doing Business in Australia: Retail Trade Productivity Commission Interim Report June 2014

Occupancy costs are without a shadow of a doubt highly related to location.

Those who are not in prime real estate and higher rent situations do not often consider it a major issue, while those that are and that pay significantly little rent as a percentage of sales also do not.

The Commission notes it seeks further information on the costs of doing business, including rent, across different categories of retailers in Australia.

This includes the extent to which these costs have changed in recent years, the impact of business size on cost structures and the extent to which e-commerce is affecting cost structures.

The Commission also seeks further information on the impact of planning and zoning laws on occupancy costs, as well as asking: "To what extent are occupancy costs also influenced by the behaviour of retail property owners?"

Source: Relative Costs of Doing Business in Australia: Retail Trade Productivity Commission Interim Report June 2014

The final report is expected in October 2014.