Big boys go for properties shunned by poor cousins

David Maida

David MaidaThe hot commercial property market and low interest rates are enticing larger retailers to purchase their own premises.

But Paul Keane, Director and Executive chairman of RCG Realty, says it does not make much sense for smaller and less stable retailers to do the same.

Smaller retailers must make the vital calculation between lease payments versus mortgage payments, he said.

“They might also miss out on foot traffic if they leave a major shopping centre.”

Shorter lease

In the traditional landlord/tenant arrangement, landlords prefer a contract of 10 or more years. But in today’s quickly changing economy, most tenants want a five-year lease with a five-year right of renewal to give them more flexibility.

On the plus side of ownership, smaller retailers who own their own premises can change the category of their merchandise without referring to stipulations in their rental agreement.

“If you have 500 square metres of retail space full of books and you wake up one morning and the Kindle has arrived, then you must be able to change that,” Keane said.

Premises Owners

For more established retailers like large DIY companies and major supermarkets, premises ownership started to become the norm over the past five to six years.

“One of the reasons why major retailers particularly have been looking at this option is that they are no longer locked into a major shopping centre owner who controls their destiny,” Keane said.

According to him, while a booming commercial property market (particularly in Auckland) and low interest rates have encouraged ownership, other factors are at play with large-chain retailers such as Farmers and The Warehouse.

“I think because the retailers have matured, they have ended up with a far better opportunity of buying in locations because they’ve got more confidence.”

Worried retailers

But not all retailers have that confidence. Apparels, and particularly children’s clothing retailers, are less inclined to purchase their own premises.

If a retailer does want to own, the primary considerations are location, demographics and market share, Keane said.

David Maida is a Business Journalist and Media Consultant based in Auckland. Read related story, ‘Grunt, Groan, Grumble and succumb to rent hike’ in this Section.

 

 

 

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