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Jul 09, 2008:
Some retail tenants are struggling to meet their contractual rental obligations due to increasing pressure in the retail industry caused by tight economic conditions.
However, owners of shopping centres who accommodate tenants during this very difficult period can prevent a lot of spaces in malls being empty.
Marc Edwards, managing director of Spire Property Management, says the company is already experiencing a shift in its retail portfolio. "Consumers are tightening their belts and this is placing retailers under pressure. They then require relief in the form of lower rent," he says.
Building owners therefore have to look at the strategic value of individual tenants in malls. He says it is of paramount importance that the shopping centre maintains the right tenant mixture to prevent a lot of spaces becoming empty.
Edwards says one way to help tenants is to apply a turnover clause with a lower basic rent amount. "This offers the tenant more flexibility due to the lower basic rent, while the owner of the building benefits progressively when the tenant's turnover exceed a predetermined figure."
He says it is also important that tenants view their businesses realistically and decide whether it is necessary to be in a shopping centre or whether they can enjoy the same benefits at other premises with lower rent.
Tenants should also devise strategies to draw more clients. It requires a co-operative effort between the tenant and the building owner.
Tenants' exposure to consumers can be enhanced if they're moved to different places in shopping centres.
Erwin Rode, property valuer and economist of Rode & Associates, says non-national niche shops are hardest hit in the current economic conditions.
These shops are affected from the demand and supply sides alike. On the demand side they're under pressure due to shrinking expendable income and on the supply side due to more shopping centres opening. "These shops usually do not dispose over a lot of capital and sell items that are not essential," he says.
He says managers of shopping centres should be sensitive to that. "Discount on rent can be considered if the centre's management believe in the long-term future of such a store."
He doesn't foresee that shopping centres will be empty on a large-scale, especially not successful ones that are accommodating tenants.
"This illustrates how important it is from a management point of view that the audited turnover of shops is being monitored." – Elma Kloppers, Sake24
