LeaseEagle CEO Lee Trevena decodes the current leasing landscape.
More than one failed retailer recently has blamed high rents and difficult leases for their collapse in recent times. How would you describe the current retail leasing landscape in Australia?
Although an unprecedented number of local retail chains have closed their doors recently, there have been many new brands entering the market.
As most of these are looking for prime space to launch themselves, the demand for quality space is still very strong, larger incentives notwithstanding. However, secondary and off-broadway space has struggled somewhat in comparison. Even Westfield has reported a drop in rents.
With larger fashion chains there has been a large shift to dual-leveraged deals, where rents will be adjusted to reflect sales going up or down. Shopping centres need the fashion component to maintain their status in the eye of the primary shopper so the impact of losing their fashion component would just be too great to contemplate.
In terms of strips. there has been significant decline in iconic locations such as Bridge Rd, Chapel St and Oxford St. As landlords operate independently in these areas there is no over-arching protection against losing traders.
There is no doubt in my mind that just like some mortgages, many retailers are 'upside down' on their leases. This is, of course, unsustainable.
Which states/suburbs are your top picks for fashion retail?
There is no real standout in this economy in my view and it really is determined by the market you are trying to attract.
Melbourne and Sydney will always lead the way for fashion. Perth and Brisbane have, however, certainly developed new opportunities as they grow but for boutique fashion the top picks are really all about where you target customer is or will go to.
How can retailers ensure that they are settling on the right location and price for their retail store?
There certainly are benchmarks that should be considered in your business model relating to levels of cost. It will vary depending on your volume, verticality and level of investment.
For a small fashion boutique I would suggest that rent should not be more than 20 per cent of sales in order to maintain a reasonable wage level and profit.
For some fashion chains they are targeting 10 per cent or 12 per cent as they generally have lower margins, carry more stock and have higher fixed costs.
A property strategy, even for a single store retailer is critical to the overall experience that you are trying to create, so in terms of the right location it can be quite a unique thing. In my view a fashion entrepreneur should be tapped in enough to know the right location for their business – without that I'd say it’s uphill. However selecting the location is just the start.
Negotiating the lease correctly is a must and although you might be the best deal-maker and drive the hardest rent deal, a lease is a complex and binding agreement that can cost you far more than a $1,000 a month off the rent. Remember you are also negotiating landlord works, fit-out and make good conditions, outgoings, options, increases and so on.
My view is always to seek an expert, not just a general lawyer, but a specialist retail leasing consultant. Without one the agent will see you coming a mile off.
Previously popular shopping strips such as Paddington's Oxford Street are now struggling – does this mean that fashion retailers should steer away from strips now?
I think strips are right for certain retailers, and always will be. If walk-past trade is the key for you then, yes, strips are not as strong generally as they have been.
However, if you are creating a more unique retail experience and can tap your market through other forms of traffic generation then strips could well be your best bet.
One thing that makes retail property more exciting is that it never changes. It is virtually a living ecosystem because it relies so much on the consumer. Strips will return and may take on different characteristics, but in my experience it is more a case of the ebb and flow of a market.
Lee Trevena is the CEO of LeaseEagle, a property management software solution which assists in managing retail leases.