13/01/2009
Tough Times Force Shopping Centres to lower rents

SHOPPING centre owners are offering to slash rents for struggling retailers to help them stay afloat rather than risk being left with rows of empty shops.

Shopping Centre Council of Australia Spin Doctor  Milton Cockburn said shopping centre landlords were giving retail tenants "incentives" such as rent holidays and reductions to cope with weak consumer spending.

As retail sales fail to keep pace with inflation retailers faced with unsustainable occupancy costs are making good on their threats to vacate thier shops.

The last time shopping centre owners were willing to offer widespread rental discounts was during the 2001 recession.

Some landlords were so desperate to stop tenants moving out they were willing to lock in the reduced rate for years to come.

Retailers whose rents are up for renewal at the moment are generally in the box seat. Not many landlords are able to increase rents on renewed leases and some rents are even going backwards.

If a shopping centre already has three or four vacancies and a lease comes up for renewal, the Tenant is in a very strong position to negotiate because the landlord won't want to lose another tenant."

The discounts are generally only given to specialty retailers,

A spokeswoman for one specialty retail chain said, however, her company had asked landlords to extend revenue-based rental arrangements to their stores but been rebuffed, as had requests for longer payment terms and rebates for fitting out new stores abandoned by other retailers.

Mr Cockburn said the rental cuts so far appeared to be concentrated in shopping centres where the biggest tenant was a discount department store or a supermarket.,

Such assistance has come too late for discount footwear chain Shoobiz, which will close all 43 of its stores across the country by May.

Both shopping centre owners and retailers fear that the presence of empty shops will create a domino effect whereby the customers of a store that closes stop visiting the area altogether, reducing sales at the remaining stores until they too are forced to close.

A spokeswoman for Westfield, Australia's largest retail landlord, refused to say whether it was cutting rents for struggling tenants, but indicated it would not be averse to the idea.

"It's not in our interests to see any retailers fail. We want to see all of them succeed," the spokeswoman said.

One senior market source said landlords were generally reluctant to admit giving rental discounts for fear of damaging the value of their property.

Accordingly, many discounts took the form of "incentive payments" whereby the tenant was given a partial rebate on their rent without making any adjustments to the lease, thereby maintaining the appearance of unchanged income for the landlord.

Retailers also preferred to keep quiet about rent reductions in order to get a competitive advantage over competitors who may not have been able to negotiate such a deal.