The retail sector is pushing back against powerful shopping centre landlords to demand rent cuts at a time when bushfires, the coronavirus and waning consumer confidence is cutting foot traffic in some malls and sending some players to the wall.
The charge is being led by peak industry body the Australian Retailers Association, which is lobbying the major landlord representative, the Shopping Centre Council of Australia, to make the case for the extraordinary run of external shocks to encourage rental support for retail tenants, or at the very least a roundtable of all players to discuss the situation.
ARA executive director Russell Zimmerman told The Australian he had discussed at length the problems now facing retail tenants with Shopping Centre Council executive director Angus Nardi in recent days.
But he said there was no appetite from centre owners for a meeting of landlords and tenants, and certainly no support for industry-wide rental assistance.
“I’ve had phone calls from retailers saying they felt there was a huge problem because the coronavirus had hit retailers,’’ Mr Zimmerman said. “Now he (Mr Nardi) wasn’t denying that there had been a slowdown in trade, and I tried to get to a point if there was an opportunity for landlords and retailers to have a discussion together, maybe talk about the issue, maybe consider some scope to get thinking how we can assist retailers.
“He said there certainly wasn’t going to be industry-wide support for it. And I just thought there might have been more empathy between the Shopping Centre Council and the ARA to maybe at least have a roundtable of sensible retailers to sit down and talk about it.”
Mr Nardi told The Australian the shopping centre industry’s operating metrics overall were positive, and the sector remained focused on driving foot traffic.
He called on tenants to discuss directly with landlords any rent issues but this should be discussed in the context of wider economic issues.
Mr Nadi noted that foot traffic at malls in December rose 1.3 per cent, year on year. On Boxing Day it was up 7.8 per cent.
The rent battle is also being fought by some of the biggest retail tenants such as department store David Jones, whose acting chief executive Ian Moir said it was “aggressively negotiating” with shopping centre landlords. Retail billionaire Solomon Lew’s Premier Investments, which has almost 1000 fashion stores in Australia, is also pushing for some rent relaxation.
Such is the exasperation with the stubbornness of landlords to reduce rents despite the bushfires and coronavirus causing significant drops in foot traffic — with Vicinity Centres admitting last week there had been a drop of up to 10 per cent in foot traffic at the country’s biggest centre, Chadstone — Mr Moir publicly called for action.
“If you want to phone Peter Allen (Scentre Group’s CEO) up and tell him that he should actually be reducing our rents across all of our centre properties, I would appreciate that,” Mr Moir told The Australian.
Mr Allen is also the chair of the Shopping Centre Council. Other directors on the council board include Vicinity Centres chief executive Grant Kelley and representatives from property companies such as Mirvac, Charter Hall, Dexus, AMP and GPT.
Scentre’s Mr Allen told investors last week it was “too early to tell” what the impact of the coronavirus would be on the company’s operations, which operates the Westfield brand across more than 40 centres in Australia and New Zealand, but he pointed to healthy January speciality sales and noted the bulk of sales in luxury precincts were to local customers.
But Vicinity Centres, part-owner of Melbourne’s giant Chadstone Shopping Centre, cut earnings guidance for this financial year, blaming the impact of the coronavirus on its luxury precincts. Some shopping centres have lost 10 per cent of shoppers, with the worst hit in suburbs with high Asian demographics such as Box Hill in Melbourne and Chatswood in Sydney.
“Should landlords be coming to the party?” Mr Moir asked. “I would always argue that landlords should be coming to the party. But we are actually in serious negotiations with all of our landlords and about taking a longer-term view, and savvy landlords understand the situation and understand the way the market is changing.’’
Adding pressure to David Jones’s push on better rental deals is its plans to exit 20 per cent of its national floorspace by 2026.
“We are working with them to change the landscape of the future. We will be out of 20 per cent of our real estate by 2026 and we will be investing in our top doors.”
Mr Moir said some landlords realised this and were “coming to the party”.
Shopping centre landlords might be less cool on rent reviews, support or sweetheart deals, hoping the coronavirus issue will soon pass and shoppers will get back to visiting their local centres.
This month shopping centre owner GPT, whose assets include stakes in Northland, Melbourne Central and Highpoint, was highlighting strong rental growth for its non-traditional retail tenancies such as dining, health and beauty and leisure, with some categories posting total rent growth as high as 7.6 per cent, compound annual growth over five years.
Some traditional retail tenants have had rent relaxation success. Mark Ronan, the chief executive of homeware, bedding and linen group Adairs, said where foot traffic had dropped sharply, it had successfully lobbied for better rents.
“There are very good centres that deliver great sales, great traffic, and therefore in those guys you are very happy to partner with a landlord and not in their pushing for big rent reductions … in other centres where we are seeing that foot traffic decline, like every other retailer out there, we are pushing for those rent reductions and in most instances getting the rent reduction we are looking for,’’ Mr Ronan said.
Mr Zimmerman said there were many shopping centres facing dwindling foot traffic after the bushfires and since the outbreak of the coronavirus that has robbed retailers of inbound Chinese tourists and local Asian communities.
“I have heard figures of up to 20 per cent falls in traffic, and that depends on individual retailers, and depends on what business they are in, but certainly we are hearing some pretty horrific stories,” he said.
“There are other places such as Box Hill (in Melbourne) where retailers have told me it is like a morgue, and there are places in Sydney like Eastwood, Ryde, which are dealing with the same reports.
“We have had the drought, which has had some impact on retailers, then the bushfires and smoke. I took a photo of one of the shopping centres in Sydney on the Thursday before Christmas and the smoke was just horrific. That put a slowdown on retail trade.
“Now on top of that we have coronavirus. Retailers have been hit pretty hard.’’