Larger retailers now facing rental pressure but experts say prices to remain flat

Rental pressure on retailers is now being felt by some of the bigger players, with Premier Retail chief Mark McInnes saying the company is experiencing “constant tension” between itself and retail landlords.

But experts say that while landlords are demanding unreasonable increases in rent, downward pressure will see prices remain flat over the next year.

“I think that’s probably right,” says DTZ Research director David Green-Morgan. “I don’t see too many rental increases in the next 12 months.”

McInnes said yesterday that “the retail market has been very challenging”.

“I see rent as a constant tension between ourselves and the landlords,” he told The Australian. He has threatened that landlords may see some Premier stores disappear if rents increase too much.

“There are some excellent centres where you have no problem paying market rent (but) then there are a whole host of other centres not performing, where they are trying to pass increases through to manage their business model.”

The comments come just weeks after reports showed Australian retail is among some of the most expensive in the world, with more pressure being brought by the introduction of international chains such as Zara.

As a result, Green-Morgan says that while he doesn’t see any rents becoming higher in the next 12 months, he also doesn’t see them falling much.

“I think that could only occur if we see a lot of businesses going out of business and we see a lot of vacancy in the shopping centres. At the moment, although every shop has a sale sign on it, the retail numbers have been slightly more optimistic that what people had been expecting.”

Although several chains including Borders, Angus & Robertson and the Premier group have announced store closures, Green-Morgan says the situation here is vastly different to that in the United States.

“You walk down the street and there might be five or six empty shops, but you walk down on Collins Street in Melbourne and they are virtually full.”

“So I see rents being flat over the next six to 12 months.”

Simon Fonteyn, managing director of Leasing Information Services, agrees, and says that in the larger stores rents will flatten out.

“I think tenants are looking to see if they can do a deal, perhaps a shorter-term deal, and that’s a bit of a trend that’s been happening. I would expect rents to flatten out in the fortress centres.”

In the regional centres, however, Fonteyn expects there to be some rent decreases.

“In the weaker sub-regionals or regionals, you might see negative reversions, meaning that on renewal the rents come down because landlords don’t want vacancies. Demand is flattening out, so you don’t see as many expansions.”

Following the Premier announcement that 50 stores will close, more attention has been drawn to the issue of retail rents, with many companies having complained of the harsher expectations from landlords as early as last year.

But Green-Morgan says while the market is in the process of weakening, “it isn’t very weak”.

“Certainly from an investment point of view, whenever one of these centres goes on the market, the demand is incredible.”