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Anger at rental arithmetic

RETAIL landlords are facing angry tenants, many of whom are now quitting centres rather than paying excessive rent rises.

RETAIL landlords are facing angry tenants, many of whom are now quitting centres rather than paying excessive rent rises.

While sales continue to decline, albeit in fashion and discretionary items, landlords are still demanding the inflation-plus-1-per-cent rent rises of the past few years.

This is occurring with all shopping centre owners in every state. While some landlords will try to negotiate a rental package at renewal time, others are just letting the tenants go and reletting to short-term "pop-up" shops.

While tenants acknowledge that landlords spend millions a year upgrading malls to entice shoppers, the rents are pushing some retailers to the wall.

In the past year, all landlords, including leading groups GPT, Westfield, CFS Retail, Charter Hall Retail REIT and Mirvac, as well as many smaller owners, have said that while conditions are tough, they have low vacancy rates. But tenants say the quoted vacancy rates are different to reality.

The general manager for property, projects and supply chain at Bakers Delight, Gerry Gerrard, said that if the numbers did not stack up, he would not lease a site.

Bakers Delight is the leaseholder of all the company's 600 sites across the country, subleasing the space and business name to a franchisee.

If the business fails or struggles to pay the high rent, the head office negotiates directly with the landlord. In most malls, aside from the anchor department stores and large supermarkets, most tenants are on a flat five-year lease with no option to extend. Before the end of a lease, negotiations will start for a new one.

Usually that means the landlord dictating the terms and the proposed rental increase.

"We are happy to pay a fair rent but some centres are now charging so much, we have left the centre at the end of a lease," Mr Gerrard said.

"We look at the centres, the landlords and the rent and in good times, we can afford the higher rents. But it's tough now and landlords need to be realistic." Mr Gerrard said that despite improving sales this year, many retailers were still recovering and recouping their losses.

"Landlords have little regard for trading conditions, however, and at lease renewal time have started asking for 40 per cent to 70 per cent increases in rent, a huge jump compared with 2008 and 2009, when rents would often decrease," he said.

"It is better to pass on a centre and high rent than have to leave halfway through a lease with a large debt and be forced to pay for the remainder of the lease."

This pressure on tenants comes as landlords are feeling the brunt of the internet and cautious consumers.


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