April 28, 2020
Reminder of how over-priced shopping centre rents were well before covid!
What's market rent? "Whatever somebody is prepared to pay"
Given the topic of shopping centre leasing is highly topical right now, it is timely to revisit the path to this point when it comes to rent costs.
Major shopping centres in particular, have been leveraging the power imbalance and over-charging their smaller retail tenants especially, for years compared to the value they provided.
In dual reports 2012 - 2017 and 2012 - 2019, data expert Peter Buckingham (Spectrum Analysis), has taken the Shopping Centre Council data, which is provided by the shopping centres themselves, to demonstrate that their rents, with their annual increases, far outweigh the actual value they have been providing.
The basic value to justify annual rent increases for tenants of their standard 4-5%, is a growth in sales in the centre, typically measured in sales $ generated per square metre. And they have not.
The data from the two reports shows that so many shopping centres were adding little growth value to earn their rent increases year on year.
Those on the commercial leasing side of the fence, may argue that the market is the market, and tenants are paying 'market' rent, because what ever they can get is what the market rate is.
There is no doubt it is a moving target and quite subjective.
In fact, at time of writing this, (27 April, 20) on a LinkedIn post around cost of rent in retail, and the forecast rental decreases of 10-30%, Retail Expert, Brian Walker commented;
"I recall once, a Westfield senior leasing manager, being asked on what defined the market? His response was " Whatever somebody is prepared to pay".
This crisis undoubtedly brings a challenging scenario for all stakeholders. But, it also brings, a once in a generation opportunity to bring a fairer balance to retail leasing, especially in the larger shopping centres.
