Retailers are highly advised to renegotiate lease

The valuations in Australia’s real estate markets continue to decline and shopping centres are among those who are taking the heaviest toll from the impact. As a result, it is being strongly recommended that retailers start renegotiating for lower rents.

“Retailers should be renegotiating lower rents in line with sales decline and shopping centre values.” says Phil Chapman, director of Retail Leasing authority Lease1.

The situation looks particularly dire for retailers located in smaller, regional shopping centres. According Vicinity, the nation’s largest retail landlord, its own portfolio of 66 centres lost about 1.3% of its valuations but a large proportion of those losses were incurred by its 43 regional malls (along with its five neighbourhood centres).

Despite this, Vicinity chief executive Grant Kelley also thinks that now would be a good opportunity for negotiations on better lease terms. In fact, it may very well be the only chance everyone has given that the shopping centre market is beset on all sides due to both online competition and the weak real estate economy.

These factors have led to both the Reserve Bank of Australia and the Australian Prudential Regulatory Authority to work on easing lending requirements and reduced interest rates to reduce the burden on all businesses affected.

As a result, there is still hope that the position of shopping centre landlords can be strengthened while also offering a better deal. Vicinity, in particular, seeks to full advantage of these developments and issue new bonds.

“A potential bond issuance will extend our weighted average debt maturity, decrease our weighting to bank debt, and with the recent material fall in interest rates, enable us to take advantage of lower borrowing costs.” Kelley says.

Though as it stands, there will still be tough choices for both landlords and retailers in the coming months. Negotiating for the reduction of lease rates isn’t going to be easy for both parties, but it can likely be a crucial first step to the survival of the entire shopping mall sector.

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