Occupancy Rent to Decrease
I have been around shopping centre retail for close to 30 years. The constant that has not been revised is the Shopping Centre Industry’s perception of what each category can afford in sales to rent ratio to determine the market rent. This of course is self-serving.
In short they still believe:
No adjustment has been made for the realities that have all eroded into the retailer’s Gross Profit that were not there a decade ago. Penalty rates and staff costs have escalated to the point whereby we are almost non-competitive on a world scale. Superannuation and workcover take a further 12-14% from cash flow that was not there before.
Utilities namely Electricity and Gas have increased by up to 150% over a decade. Most rents increase at a flat 5% annually whereas Sales have been stagnant or hovering around 3% increases annually, or CPI just……. Most of the supposed sales increases are skewed because the department stores have been in sale for more than a decade or supermarkets use suppliers to fund Loss leaders to bump their sales.
Specialty Sales are the lifeblood and are being smashed particularly in margin which is the point otherwise why operate?
Internet competition is well documented, to stay operating General and Fashion have had to adjust margin again. Food is not entirely exempt. Uber Eats, Foodora and Deliveroo are assisting with maintaining take away sales or increasing them however the cost is significant.
Tax and compliance is the elephant in the room nobody talks about when assessing small business. The reality is everybody and mostly the landlords were happy to put their hand out turning a blind eye to the cash economy. The reality is without a cash economy most small business is marginal if not pointless. In the era when pay wave is the go and electronic sales are the majority of Sales, time itself has been the industry’s reckoning.
We have seen an unravelling in the Franchise Industry recently whereby close scrutiny basically brought it to the fore. Without practices that are not ‘legal’ the model does not stack up.
Something has to give and the single two biggest costs for any small retail business are rent and staff.
Without the ratio corrections NOW specialty retail in the Shopping Centre environment will not survive.
Dramatic? Yes! But then so is life.
Ange Kondos – Director of LeaseWise
Related Tag: Retail Lease Consultant