Major retailers are striking “brutal” deals with landlords off the back of the pandemic, but some small stores that can least afford it are back paying full rent and even face rental debts from last year.
- A code that made landlords negotiate with tenants on rents during COVID has ended
- Some retailers who are still struggling are back on full rent
- Some are also paying back rental money deferred during the peak of the crisis
A mandatory code of conduct that made commercial landlords negotiate on rents with small- to medium-sized tenants during COVID ended last month in all major states.
Ferguson Plarre franchisee Pranay Mahajan is one of many small businesses still suffering from the pandemic downturn, more than 12 months after it began.
“We are 20 per cent down compared to last year,” he said.
He believes his bakery in the food court of a Melbourne shopping centre, owned by major player Vicinity, is losing revenue because people are still staying away during COVID.
“We used to get 250 customers a day but now we are struggling to get 150 a day,” he said.
“People don’t have much money to spend. They are still scared of another lockdown.”
At the peak of the crisis, he said Vicinity entirely waived a chunk of his rent and deferred payments of another portion, to be paid back at a later date.
But now, despite still being down, Mr Mahajan said he is back on full rent.
“You have to put money from your pocket to run the business,” he said.
“We’re not sure how long we can run this business. There’s always stress about another lockdown.”
Vicinity declined to comment on an individual tenancy.
As of December, the shopping centre giant, which runs centres like Melbourne’s Chadstone, had given its tenants $215 million in rental waivers, much of which it has written off.
All up, Australian shopping centres alone have given tenants $2.1 billion in rental concessions. Half of that is technically deferred and potentially may need to be paid back.
The industry’s lobby group the Shopping Centre Council of Australia also declined to be interviewed, but in a statement it said rental negotiations are being handled “on a case by case basis”.
“Requests for rental assistance ‘turned the corner’ in mid-to-late 2020, reflecting improved trading conditions,” they said.
Rents going back up nationally
Mr Mahajan’s story is being seen right across the Ferguson Plarre network.
The company told The Business that 19 of its 84 stores got rental concessions during COVID. The company itself also gave its franchisees about $500,000 in rent relief because the gap was too much for some of them.
A year on from COVID, only two stores are still getting rental relief from landlords, despite 48 of them still trading down.
The company has both retail strip stores and tenancies in shopping centres, meaning it is experiencing the loss of rental waivers right across the commercial landscape.
Chief executive Steven Plarre said the loss of rental subsidies has been tough for those stores still struggling.
“It makes things quite uncertain going forward,” he said.
The loss of rental subsidies coincided with the loss of JobKeeper, which was actually a trigger for the loss of the rental code, because eligibility for it was tied to JobKeeper.
“COVID has been incredibly tough. It continues to be,” Mr Plarre said.
“Particularly since JobKeeper and some of the leasing code support has fallen away.”
Mr Plarre did not single out any particular landlord and said some had been understanding, but others not.
He wants the code brought back into play and for landlords to come to the table for stores that are still struggling.
“The way through this is partnership. We both need to survive this,” he said.
“Landlords have terms they have to make, I get that. They’re owners and they need a return on investment.
“But they’re not going to survive if they have for lease signs and vacant signs all over the place.
“At a commercial level. Not over and above.”
Deferred rents being paid back too
Some retailers are not only back paying full rent but also some of the rent deferred during the pandemic.
Beauty salon owner Carlie Lansdown was given a 50 per cent rent reduction and a 50 per cent deferral during the worst months of Victoria’s extended lockdown.
“I wouldn’t have my doors open if i didn’t have that as an option. I would be in so much more financial stress,” she said.
Her salon Soak Bar and Beauty in Melbourne is now trading better than ever, as people seek some personal luxuries after the lockdown.
That has seen the small business start to pay back some of the deferred rent.
“As of November our rent went back to normal. And then with a little bit extra each time for the deferred rent,” she said.
“We are sacrificing on little things and we do really have to be very careful with our budgeting, each month, just to make sure that we are covering that little bit of extra for the rent.”
She feels sorry for businesses not in a position to do this.
“I do feel very sorry for the tenants that are still having to pay rent, and high rents, in this period coming out of a pandemic,” she said.
Chief executive of the National Retail Association Dominique Lamb said they were aware of other retailers starting to pay back deferred rents.
“Now the deferred rent is either being added on to the repayments that retailers are having to make or it is being pushed onto the end of their lease,” she said.
“In addition to that, many landlords have had to comply with new hygiene protocols and an increase in retail crime. That’s led to an increase in spend in security and cleaning. Those costs are now also being pushed onto our retailers.”
Major retailers striking ‘brutal’ deals
This all comes as major retailers reportedly strike major deals on rent.
Property developer Scott Spanton has been privy to about 50 rental negotiations since the start of COVID.
“They’ve ranged from some really brutal negotiations through to some quite mild rent reductions or same, same,” he said.
One involving a major anchor tenant in a shopping centre staggered him.
“They had a lease expiring this year and they renegotiated a rental deal from $1.6 million down to around $900,0000 a year in rent for a seven-year deal with $5 million in cash upfront.
He said some smaller retailers are getting concessions too.
“We’ve seen rents of $110,000 to $120,000 a year reduced to $80,000 a year.”
It is difficult to know exactly what rental concessions are being given because landlords will not disclose it, citing confidentiality agreements.
ABC News approached a dozen major players, including Vicinity, Westfield, Mirvac and Stockland, and none would talk about their policies for still suffering retailers or the impact of any rental concessions on their business models.
The NRA’s Ms Lamb said mostly negotiations have been constructive, but that she hopes landlords look after the little guys.
“If we want an active economy, we need to ensure those small- and medium-sized businesses are looked after as much as those that have power.”