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Tackling retail’s biggest challenge – rental overheads

May 02, 2017

Rental overheads are the biggest challenge keeping retailers awake at night, according to Inside Retail’s 2017 Australian Retail Outlook. Over the next 5 weeks, leasing expert, Kyle Swain, will explore the current issues and trends in leasing and the best ways for retailers to negotiate better terms, culminating in an online webinar on Wed 31 May.

By Kyle Swain, The Leasing Department

Despite all the noise around the imminent arrival of overseas retail giants like Amazon and Lidl; the ongoing concern of online retailers taking sales from bricks and mortar stores; and discussions over high labour costs and weekend penalty rates, it was rental overheads that ranked highest as the ‘biggest challenge’ facing the retail industry in Inside Retail’s 2017 Australian Retail Outlook.

The biggest challenge facing the retail industry in 2017 as identified by retailers is ‘rental overheads’ Source: Australian Retail Outlook 2017

When the Outlook, which surveyed a broad cross section of retailers around Australia, asked retailers to identify the biggest challenge facing the retail industry this year, 44.6 per cent identified ‘rental overheads’ as the biggest challenge, ranking it above ‘international entrants’ and ‘offshore online retailers’.

The Outlook, also revealed that just 9.6 percent of retailers expected lease terms to get better this year, 65.4 percent expect them to stay the same, while 25 percent expect terms to get worse.  

Market rent reviews undertaken by The Leasing Department in the first months of 2017, suggest that lease terms for retailers in the next 12 months will most certainly ’get worse’. Initial market rent proposals by landlords have been between 13 and 20 percent above passing rent, while rent renewals have been proposed with increases of between 5 and 15 percent. 

It is not surprising then, that tensions were high between retail tenants and shopping centre landlords at Inside Retail Live recently when a member of the audience asked a panellist representing landlords how rent increases could be justified when retail conditions are so challenging.

What is surprising though, is that, according to the Outlook, retailers did not rank reducing rental overheads as a top priority for the year. Instead, participants identified increasing sales (30.5 percent) as their top priority followed by increasing margins (12.4 percent) and expanding their store network (8.6 percent).

Whilst every retailer should definitely be implementing strategies to drive sales growth and margins, they simply cannot ignore a cost that can equal as much as 25 percent of their total sales revenue.

Many retailers feel that once their lease is signed, there’s nothing more that can be done.  Well there’s an old saying, ‘nothing changes if nothing changes’.

The Leasing Department’s Top 3 Tips for retailers wanting to meet the rental overhead challenge head-on and make a change to improve their bottom line are: 

  1. Never pay the recommended retail price
  2. Every lease event is an opportunity to re-align lease terms with market conditions
  3. Lease terms can be negotiated mid-term.

 

Read the whole series:

 


Register now for our online webinar ‘Tackling rental overheads’ 
Free for NRA members

In this interactive webinar, Kyle Swain will discuss his top tips for negotiating better lease terms and reducing your overheads. There will also be a Q&A session at the end of the webinar so you can ask those burning questions about all things tenancy and leasing. So, if you’ve been wanting to know more about what you can do to minimise your rent and make sure you’re paying the rent amount that is right for your business, here’s your chance to speak with an expert.

Register here for the webinar >>


NRA members can also contact The Leasing Department for a 15 minute complimentary consultation. Following initial contact, members can choose to formally engage The Leasing Department to act on their behalf.


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