Shopping centres cut rents in bid to keep vacancies low
The pressure on specialty retailers from the internet, higher savings by households and a basic loss of interest in what they have for sale, has forced landlords to cut rents in a bid to keep vacancy rates low at shopping centres.
While it's not at a crisis point for the landlords, rents have fallen, on average, by 0.5 per cent in the past year to the end of March, for stores that sell anything else but food.
This is across the sector, with Westfield's co-chief executive Steven Lowy warning in February that lower rents would prevail for new store leases in its centres.
In some cases, for new leases, that could see a reduction of as much as 5 per cent in rents.
Specialty stores range from hair and nail salons to fashion boutiques and apparel chains.
According to the national retail analyst at Jones Lang LaSalle, Andrew Quillfeldt, there is limited scope for specialty store rental growth within the next 12 months.
In the Jones Lang LaSalle's national retail data for the March quarter, and for the year to March, the figures show that retail rents on average across all formats declined about 0.5 per cent in the 12 months to March 2013.
"The limited rent growth is because many of the domestic fashion retailers are still cautious about expanding, but landlords are now actively trying to drive income growth in individual centres by commencing refurbishment and expansion programs on their major assets," he said.
Mr Quillfeldt said the declines have been localised rather than a broad-based effect across all markets and retail formats and performance still varies significantly from centre to centre.
The head of retail, property and asset management at Jones Lang LaSalle, Tony Doherty, said the patchy retail sector has led landlords and centre managers to become increasingly realistic with leasing expectations.
"The importance of ensuring we have quality retailers is greater now than ever. Taking a high risk on retailers that are prepared to pay a higher rent is not always the best alternative," Mr Doherty said.