Grunt, groan, grumble and succumb to rent hike

Mike Booker

Mike BookerBig rent rises sought by Westfield malls have angered retail tenants, who expressed their resentment to Retail News.

In one case, where a lease had expired, a retailer initially faced a 20% plus rent hike.

The anger is not being expressed publicly for fear of antagonising the mall owner, described as ‘God’ by one retailer.

The retailers spoke to Retail News on condition of anonymity.

While the complaints have mainly concerned Westfield, which has nine centres in New Zealand with more than 1400 retail outlets, some retailers believe that there is a general problem of landlords being out of step with retail reality, in particular online competition.

Rapacious demands

The unhappiness over what they regard as rapacious rent demands by Westfield comes on top of long-standing concerns about ‘exorbitant’ operating expenses loaded on to tenants, tough tenancy terms and the mall owner playing prospective and existing tenants off against each other.

“At some point you have to stop and say ‘this is nuts’,” a retailer who did not renew a lease, said.

“These guys have so much power that they create their own rules,” said another retailer with a number of shops in malls around the country.

Different view

Linda Trainer, General Manager of Shopping Centre Management for Scentre Group NZ, said that the Group, which manages Westfield-branded shopping centres, works closely with retailers.

“We closely monitor market conditions and continually work with retailers with regard to their business and the overall performance of our centres,” she said.

Westfield, like other landlords, reviews rents annually in line with inflation, but with a margin on top. Its whip hand is strengthened by good demand for space in its malls.

At last report, the vacancy rate in all Auckland shopping centres was 1.5%.

Negotiated price

The shop owner who faced a 20% plus rent increase said that he considered pulling out of the mall, but managed to negotiate the rise down.

Retailers spoke of Westfield being willing to negotiate rent and terms to get retailers into its malls, but once they were in, it was costly to leave.

And, as with the case of most malls, they face a standard requirement that they do a new shop fit out – potentially costing six figures – every time their lease rolls over.

“Walking away creates a huge cost.”

Christine Ding, a Director and property law specialist at DG Law, said that leasing in malls can be difficult for retailers and in particular small ones.

“They may not have much latitude in negotiations as they don’t have much bargaining power.

“The extent of this imbalance depends on their size, location, the mix of tenants in the mall and the willingness of the landlord to accommodate them.”

Powerless tenants

Another retailer said, “In my experience, Westfield does not see us retailers as the customer. The customers are people who come into the mall and as a result we do not have any power over the mall.”

Property owners in general “have not grasped the fundamental change that has taken place in retail – the impact of online.

“Bricks and mortar stores who run companion websites cannot undercut their bricks and mortar prices without offending customers, but in turn they can be underpriced by international and New Zealand pure online stores.”

Since July 2014, Westfield-branded shopping centres in New Zealand and Australia have been managed by Scentre Group.

Grunt, groan, grumble and succumb- Retail News.jpgMike Booker is the Editor of Retail News, a web-based newsletter and communication service from Wellington. The above article appeared on December 8, 2014 of the publication. Retail News supports the Indian Newslink Indian Business Awards, especially the ‘Business Excellence in Retail Trade’ category.

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