Australia’s most successful bakery franchise Bakers Delight has joined a push by retailers to “rebalance” the power between landlords and store owners in setting rent prices.
The bakery’s property manager Gerry Gerrard told SmartCompany retailers are at the mercy of landlords, with most demanding rent increases of 25-40% during negotiations.
The owners of the chain’s 600 bakeries have to hand over sales reports and Gerrard says landlords are using these to come up with prices which reflect what the store owner can afford to pay, rather than basing calculations off rental markets like other property landlords.
“Bakers Delight has been the recipient of opening offers from landlords which are 25-40% above what they’re playing at the moment and we’re certainly not on a honeymoon. Landlords are being bullish.”
“The highest increase I’ve seen this year is a 76% increase at the first offer. This isn’t necessarily what ends up being paid, but this is coming on the back of a very hard trading time. Stores have been lucky to hold last year’s sales, let alone have an increase in sales,” he says.
Gerrard says each year Baker’s Delight helps 125 tenants renegotiate leases with landlords and many landlords include a 5% increase in rent per annum in the contracts.
“There are six annual increases which take place through over the course of the lease anyway, making that an increase of 30% in rent over six years. On top of that they are asking for another 20% to 40%.”
“They’re not being reasonable on their opening offers,” he says.
Gerrard says the system has become unbalanced because legislation is “written in favour of the landlords”.
Gerrard says changes need to be made which force retail landlords to use third-party figures to set rent increases.
“The legislators should listen to the retail bodies, like the Australian Retailers Association, and rework it so the balance of power comes back,” he says.
The comments from Gerrard come days after Harris Farm Markets co-chief executive Tristan Harris urged the Australian Competition and Consumer Commission to examine lease agreements and new store developments as part of its investigation into the duopoly of Coles and Woolworths.
“Coles and Woolworths are looking well into the future in terms of where they can put down a store and are happy to run it at a loss,” he told The Australian Financial Review.