Retail rents set to drop: real estate survey

Retailers may soon have the upper hand in negotiations with landlords if centre managers’ predictions of declining rents and rising incentives in the second half come to pass.

Nearly half (47 per cent) of centre managers polled in a recent survey by real estate firm JLL said they expect rents to continue to decline over the next 12 months, and 57 per cent said incentives of 15 per cent or higher are now required to attract new tenants, the biggest proportion ever recorded.

“Tenants are seeking fit-out contributions, delayed commencements and capped occupancy cost clauses to commit to new deals,” Tony Doherty, JLL’s head of retail, property and asset management, said in a statement about the survey’s findings.

This comes at a time of rising retail spending, despite subdued consumer sentiment and business confidence.

Almost half the centre managers surveyed (49 per cent) expect some level of growth in moving annual turnover (MAT) over the next 12 months. This figure is on par with JLL’s last survey, although fewer managers now expect a decline – 24 per cent compared with 30 per cent previously.

“Australia’s total retail turnover growth has remained reasonably healthy at 3 per cent in July 2019 despite weakening sentiment towards the retail sector over the past 12 months,” said Andrew Quillfeldt, JLL’s senior director of retail research.

Nevertheless, Quillfeldt predicts retailers will continue to rationalise store networks in the second half.

Enquiries from national chains has dropped to 8 per cent from 14 per cent in the previous survey, with mum-and-dad retailers continuing to dominate tenant enquiries at shopping centres, accounting for 57 per cent.

According to centre managers, changes in tenancy profiles is the biggest positive contributor to the MAT outlook, while competition from other centres, online retailing and fuel prices are biggest impediments.

“While competition from other centres remains the biggest concern for centre managers, online retail is becoming a more relevant factor as a greater proportion of sales migrate online,” Richard Fennell, JLL’s head of property and asset management, said.

“Fuel prices are now the third biggest concern for managers, overtaking the economic outlook as a more important factor.”

Meanwhile, casual mall leasing, or pop-up shops, is on the rise, driven by tenants who want to test the market and create brand awareness before committing to a larger space.

JLL’s survey showed 73 per cent of managers have casual leasing opportunities in their centres, and 72 per cent had received an enquiry in the past six months.

This article was first published on Inside Retail, a sibling website to Inside Franchise Business.