Retail landlords feeling the pinch

With only a month to go before shopping centre owners announce their profits for 2012-13, more bad news is emerging on the tenancy front, with vacancies on the rise and rents dropping.

With only a month to go before shopping centre owners announce their profits for 2012-13, more bad news is emerging on the tenancy front, with vacancies on the rise and rents dropping.

While food-based malls are faring better, landlords of bigger mixed-use centres are under pressure to offer incentives to keep shops open, or restyle the malls to entice shoppers.

International retailers, pop-up shops and enlarged food courts are a few of the avenues being pursued by landlords. But even these have not held off a shift in rents and lease terms from 10 years back to five in some cases, and for department stores, from 20 years to 10, for renegotiated contracts.

Landlords will always make a profit from a mall through redevelopment, sharing in cinema profits, car parking fees and capital growth from the land and buildings. But sustained weakness takes its toll, leading to lower rents being offered to get shops leased.

The latest report from Jones Lang LaSalle, covering the first half of this year, shows the average vacancy had risen from 3.5 per cent to 4 per cent.

The Jones Lang LaSalle head of retail, property and asset management, Tony Doherty, said even though many retailers had been strengthening their business over the past 18 months, the leasing market remained tough and it was becoming more challenging to attract new tenants.

"While vacancy rates have remained elevated, leasing activity is rising, reflecting the higher rate of tenant turnover ... as landlords go through the slow process of optimising their tenant mix," he said.