Retailers seeking tenancy in Australian Westfield shopping complexes are getting reduced rates compared to existing tenants, The Age reports.
The issue of slashing rents to attract new retailers into the group’s shopping centres was first flagged in the retail giant’s 2013 mid-year report, amid rocky times for the retail economy.
The full-year results released yesterday showed that new tenants could be paying around 6% to 7% less than existing tenants seeking to renew their contracts in the malls.
Westfield Group reported a full-year after-tax profit of $1.6 billion for 2013, which was down 6.7% from the 2012 financial year. Its revenue was up 7.4% to $2.385 billion.
In August 2013 when Westfield released its mid-year results, it reported its new tenancy contracts could be lowered by up to 10% in its retail malls.
At the time, Leasing Information Services managing director Simon Fonteyn told SmartCompany Westfield’s negative leasing spreads were “falling into line” with trends from other major retail centres across Australia.
“In June 2012, The GTP Group took at 10% reduction on new leases, while in December 2011, Stockland reported a 6% reduction,” he said.
Fonteyn said there are “so many reasons” why its retail leases are under strain.
“The malaise in retail is well understood by industry… the drop is a sign of them having to meet the market,” he said.
He said overall renewal rates are down due to the tough retail conditions, so he thinks the move by Westfield is a sign that the retail giant is becoming “more pragmatic”.
Fonteyn said Westfield and other big malls are becoming like “de facto department stores” as major international brands start to make a deeper impact on the Australian market. He said they can take up 15-20 single store fronts within a centre to make mega-stores.
Partner at Lowe Lippmann Chartered Accountants and Business Advisors, Brian Gordon, told SmartCompany at the time he was surprised Westfield would negotiate rents to that degree, but figured the retail giant had “no choice”.
“It is extremely well known that Australian shopping centre rentals are massively higher than everywhere else internationally,” he said.
The news from Westfield comes as two of its core tenants, Myer and David Jones, are reportedly in merger talks. After knocking back an approach from Myer in October 2013, David Jones is reportedly set to start talking to its core rival to investigate the details of a potential $3 billion merger.