Northcape

Property Services

Outlook for the retail leasing market in 2015…

This time last year I wrote an article about the outlook for the retail leasing market in 2014, so I thought we should re-visit some of my predictions, before I give my views about what to expect in 2015.

In 2014 retail rents came back a little, but probably not a great deal, however significant lease incentives continued to be offered by larger landlords which I did predict would occur. During 2014 it wasn’t unusual for savvy retailers to secure capital incentives from large landlords when negotiating new leases, particularly where their shopping centre was undergoing re-development. Smaller landlords generally don’t have the access to cheap capital, so their incentives came in the form of rent free periods. (more…)

Retail lease legislation, your friend……

As a retail lease negotiator/advisor, I come across all manner of situations involving retailers who are encountering problems with their landlords. In many cases these problems are actually simple miss understandings on the part of the retailer who are actually not that familiar with the terms & conditions of their lease.

However there are some cases (and these situations are quite rare) where landlords are simply not abiding by the lease or relevant retail lease legislation. (more…)

Good landlord relationships, a must……!

I was recently speaking to a leasing executive friend of mine who is with a large retail property trust  – we were discussing various issues within the industry, in particular retailer relationships and people who do what I do, negotiate leases on behalf of retailers.

After some banter, the leasing executive became quite serious and said that he really didn’t like dealing with certain lease negotiators and some retailers. When I asked why that was the case, the leasing executive said they were just too difficult to work with and were often abrasive. At first I thought he was having a tacit jab at me, but thankfully he assured me that he was talking about a handful of individuals within the industry, not myself. (more…)

“It’s a tenant’s market”

Over the past few months I’ve dealt with a number of interesting matters that involved retailers who had worked themselves up into a lather about their impending lease expiry. In virtually all cases, the retailer was deeply concerned about their landlord potentially not offering them a new lease or asking for a massive increase in rent. Given the profitability of their business’ (and by extension their livelihood) could be seriously affected by the outcome of how the landlord was going to act, most of my clients were naturally very nervous about their situation, understandably so. (more…)

Lease Documentation – Getting it right…

Happy New Year !…. I believe 2014 is going to be a very interesting year indeed – it will bring some big challenges to the retail sector, but equally I think it will bring big opportunities too. In particular I recommend that you watch the bond and equities markets and perhaps even the property sector, particularly in the US and other parts of the developed world, as well as Australia. I think there’s a big correction coming, however we’ll see if I am right in due course.

This month I thought I would talk about lease documentation, yes I know a fairly dry subject, but one that is very important, I hope you find it interesting. (more…)

2013 A Year In Review….

I was recently having coffee with one of my clients who owns a womens fashion chain, we were talking about his expansion plans and the general state retail industry. Our conversations often go off topic and before long we are talking about all manner of issues ranging from geopolitics, government debt, monetary policy, unemployment and the list goes on.

The subject that we kept coming back to was, “what was going to happen to the economy, the retail sector and by extension, the retail leasing market”. (more…)

Selling Your Business – Dealing With The Landlord

Most retailers will at some stage wish to sell their business and enjoy the fruits of their labour. Sounds straight forward doesn’t it, simply talk to a business broker, place the business on the market, sell it and the rest is merely a formality. Well aside from the fact that the market is a little soft at present, the last part I refer to as “the rest”, is not a merely a formality. It is probably the most overlooked aspect of the sale process and often a cause of major frustration. (more…)

“Skyfall”

Like many of you I watched the recent federal election debate at the national press club between Prime Minister Kevin Rudd and Federal Opposition Leader, Tony Abbott. The economy featured heavily in the debate, particularly how both parties intend on handling the economy as it slows down. (more…)

Retail Shop Design – “Keep it fresh”

I was recently in the city (Sydney) having a coffee at one of my favourite cafés. At the time I was reading an interesting article in the Australian Financial Review about the state of the retail industry and the many challenges facing it, not the least being the onslaught of overseas retailers heading to our shores. I started to drift off and think about my own shopping experiences overseas, particularly in Europe – I recalled a busy high street in Paris where I visited several amazing patisseries a few years ago. (more…)

“What is the current market rent for my shop?”

One of the most common questions I am asked virtually every day is “what is the current market rent for my shop”? It sounds like a fairly straight forward question, however my response is the same on every occasion – “it depends”! I know it sounds like a fairly vague response to a specific question, however it really is accurate, current market rent is very site specific. But, what does “current market rent” actually mean?

Without citing chapter and verse of the legal definition, it broadly means the maximum rent the market is prepared to pay for a premises at a specific point in time, if those premises were vacant, having regard to it’s usage, but not taking into account who currently occupies the shop, the business’s goodwill, fit-out and other improvements.

This is of course very simplistic and not by any means a legal definition, however I think you get the picture.

Current market rent is most often determined during the course of a mid term market rent review or when a lease option is exercised. Effectively this means two parties to a lease being the lessor (landlord) and lessee (retailer) negotiate and try to agree on what they each believe to be the current market rent. If the two parties cannot agree on the new rent, the matter is then often referred to a third party, such as the Australian Institute of Valuers. They then appoint an independent, experienced and qualified valuer who becomes the arbiter and determines what they believe to be the current market rent.

When it comes down to assessing current market rent for a specific shop, there are a myriad of factors that have a bearing on the outcome. One of the most obvious is the state of the retail leasing market in which the shop is situated. Local economic issues such as unemployment, household income, age, population growth, competition and availability of supply, all play a part in determining what the current market will be for a specific shop.The physical state of both the premises and the complex in which it is located is also a relevant factor.

Within a small geographic area, there may very well be variations in current market rent. For example a newsagent located in a regional town on the high street may be paying $450 per square metre in rent, with most of the neighbouring retailers paying a similar level. However not too far away around the corner located in a shopping centre, another newsagent positioned next to a large supermarket is paying $750 per square metre, as are most of the specialty shops in that part of the shopping centre. So which Newsagent is paying current market rent? Well, both are because each shop has a very different value based on supply and demand. In other words if the first shop on the high street were to become vacant, the maximum rent attainable would only be around $450 per square metre, whereas the shopping centre newsagent has much more passing traffic and a cue of other retailers wanting space in that centre, meaning there is high demand for the space. The landlord would have no problem achieving $750 per square metre, hence it is reflective of current market for that location.

(more…)

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