Retail landlords urged to ease costs
Bernie Brookes, the head of Myer, which anchors close to 90 per cent of all major shopping centres across the country, warned of tough times ahead, singling out high wages, rents, taxes and utility costs, on top of flat sales.
Westfield has said that rents for new specialty stores were being signed at up to 10 per cent (average of about 6 per cent) lower than existing contracts, while other landlords such as GPT, which owns Highpoint in Melbourne, and CFS Retail, which owns half of Chadstone, have also warned that rents were rising at a very minimal range to avoid tenancy bankruptcies.
To a certain extent, the traditional anchors of malls - larger department stores, discount department stores and supermarkets - pay smaller rent as it's spread over long term leases, between 15 to 20 years. But they pay occupancy costs to the landlord, which can be as high as 18 per cent. As a general rule, occupancy costs are charges that include real estate taxes, personal property taxes, insurance on building and contents, depreciation and amortisation expenses.
In the recent earnings results for the major landlords, those costs were an average 16 per cent. Westfield was 19.6 per cent, CFS Retail was 17.3 per cent and GPT was 18.2 per cent.
According to John Kim, of CLSA, mall owners will be defensive investments from an occupancy perspective, but are factoring negative 7 per cent re-leasing spreads through to 2017 as international retailers require larger formats at lower rents per metre.
Mr Kim said Westfield's Australian specialty leases generally had the inflation rate plus 2 per cent annual increases embedded in the leases, so the only way for it to reduce occupancy costs for its tenants was to offer a lower initial rent and higher incentives.
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Retail landlords are being encouraged to cut costs because many shopkeepers are struggling with poor sales. The article says landlords should ease not just rent but also marketing, maintenance and upkeep of pedestrian areas to help tenants survive weak trading conditions.
Bernie Brookes, head of Myer (which anchors close to 90% of major shopping centres), warned of tough times ahead. He singled out high wages, rents, taxes and utility costs, combined with flat sales, as major pressures on retailers.
According to the article, Westfield said new specialty store rents are being signed up to 10% lower than existing contracts (about a 6% average). Other landlords such as GPT and CFS Retail have also said rents are rising only minimally to avoid tenant bankruptcies.
Occupancy costs are charges that include real estate taxes, personal property taxes, building and contents insurance, depreciation and amortisation. The article reports average occupancy costs around 16% for major landlords, with Westfield at 19.6%, CFS Retail at 17.3% and GPT at 18.2%.
Anchors such as department stores and supermarkets typically pay lower headline rent because it's spread over very long leases (15–20 years). However, they still pay occupancy costs, which can be as high as 18% and cover shared expenses for the centre.
John Kim of CLSA said mall owners will be defensive investments from an occupancy perspective and are factoring negative 7% re-leasing spreads through to 2017, as international retailers seek larger formats at lower rents per metre.
The article notes that Westfield’s Australian specialty leases generally include inflation plus 2% annual increases, so the practical way to lower tenants’ occupancy costs is to offer a lower initial rent and higher incentives rather than reducing the embedded indexation.
The article mentions Myer (anchor in many centres), Westfield, GPT (which owns Highpoint in Melbourne), and CFS Retail (which owns half of Chadstone). These landlords and centres are highlighted in discussions about rents, occupancy costs and leasing trends.
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