Discounting looms in tough times for retail

Retail landlords are expected to come under more pressure as the flat retail sales growth for July and the unseasonably warm start to spring are expected to force another round of discounting by tenants.

In this year's reporting season, the average comparable sales growth from specialty stores, as reported by the landlords, just broke even with inflation. For Westfield it was about 0.6 per cent, while for CFS Retail it was about 2 per cent, with cinemas and retail services (hairdressers and mobile phones) were up and department stores down.

The Bureau of Statistics shows retail trade rose by just 0.1 per cent in July after a flat result in June. Annual spending growth rose from 1.1 per cent to 1.9 per cent. However, over the past five months spending growth is running at an annualised minus 1.2 per cent.

But all the major owners said the leasing of new shops had seen a drop in rents of up to 10 per cent in the past six months.

Analysts say retail owners with food-anchored centres would be the better performers as consumers shun apparel.

Deutsche Asset and Wealth Management's Asia-Pacific real estate strategic outlook says it continues to be a tenants' market, with retail landlords keen to maintain high occupancy within their centres at a time when new inquiry has been subdued.

Tenants favour better managed centres with a clear marketing plan to help attract shopper traffic. "As such, landlords have been flexible in their rents with many offering better incentives, including rent-free periods and contributions to fit-outs," the report says.