Struggling retailers are fighting back against rent hikes and hitting landlords with compensation claims where the landlord’s actions have led to a drop in foot traffic.
Online retail leasing data provider Leaseinfo.com.au reported a sharp spike in requests for data that is used to determine disputes between lease holders and landlords. In the last three months, the company has received about 70 requests for value analysis.
“Rents are a lot more frequently contested, indicating at least larger retailers believe rents can fall and are taking their landlords to task,” Leaseinfo.com.au chief executive Simon Fonteyen told The Australian Financial Review.
Director of property advice group Lease Matters, Sharon Johnston, says the matter is only going to get worse.
“If you look at something like menswear, you’re looking at a property cost to turnover rate of 18.8%, although that may change with other industries. Those numbers have been increasing and that has decreased gross profit margin for the guy who’s taking the risk.
“We’re also seeing massive closures with big brands. Property operating expenses are typically the highest cost of a business. Particularly if it’s a franchise arrangement, we’re seeing those close down a lot.”
She has also tipped a rise in the number of compensation claims (known as abatement claims) lodged by retailers when a landlord makes changes that result in less foot traffic.
“There’s been some changes to retail legislation in terms of compensation, which people are starting to become aware of. Tenants have a right to compensation where the landlord does or doesn’t do something that materially impacts on foot traffic or access to premises.
“If you moved into a centre that had health insurance companies and a post office, and there were a smattering of retail, those retailers would have gone in there knowing those shops were there. If the mix was changed to become a fresh food centre for argument’s sake, you’ve got substantially different foot traffic,” she says.
“Retailers have a right to then challenge that.”
Abatement claims, once a rare form of work for Lease Matters, now make up 70% of the company’s work.
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Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
