Smaller retailers follow big stores in negotiating lease discounts of up to 40%

News that Myer has been successful in renegotiating rental agreements for some of its department store leases has re-ignited debate about the balance of power between shopping centre landlords and retail tenants.

In better-than-anticipated half-year results released last week, Myer confirmed that “proactive lease negotiations” had yielded results amid reports that it and fellow department store giant David Jones would consider closing more stores if rents were not reduced.

Last week, David Jones opened its latest store in the redeveloped Highpoint Shopping Centre in Maribyrnong alongside global retailer Top Shop, with Zara opening its outlet this week.

Shopping Centre Council of Australia executive director Milton Cockburn hit back saying department stores hadn’t been pulling their weight in attracting foot traffic to shopping centres in the way anchor tenants are supposed to do.

The latest Sitting Tenant Renewal Report prepared by consultants Leasing Information Services (LIS) reveals that it’s not just the likes of Coles, Woolworths, David Jones and Myer that have bargaining power when it comes to lease renewals.

Shoe retailer Hype DC managed to secure a 40% discount on its Westfield Bondi Junction lease when it negotiated its renewal in September 2011.

The reduction in annual rent from $340,000 to $200,000 a year was for its 86 square metre shop in the Sydney Eastern suburbs mall.

According Peter Pitt, a director of Hype DC, the retailer was paying “way above market rent” in its previous tenancy agreement with Westfield.

“It’s one of the few mistakes we’ve made in leasing over the years,” he tells Property Observer.

When the Bondi Junction store came up for renewal, Pitt said they negotiated the discount on the basis that they would leave unless Westfield agreed to lower their rent.

“They understood that the market is the market” says Pitt of Westfield, who he describes as a “very professional landlord”.

The substantial discount highlights the challenges faced by smaller retailers and the importance of finding out what other retailers are paying for an equivalent space.

Pitt said they were able to compare what other tenants were paying using information provided by LIS.

Tenants can also access leasing information from the NSW leasing register. All leases of three years or more are required to be registered.

Hype DC also secured a 44% discount off its shop lease in the Westfield Chatswood on Sydney’s north shore.

Pitt says this reduction was due to relocating to a smaller shop in the mall and was around the same rate per square metre that it was previously paying on its bigger shop.

Hype DC operates 17 stores across NSW, 13 in Victoria, 10 in Queensland and one each in Perth and Adelaide.

Data from the LIS report suggests the trend whereby Queensland shopping centres are retaining tenants at higher rates, whereas NSW is fairly stagnant.

This article first appeared on Property Observer.


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