“Shocked” jeweller not moving as rents soar

Wallace Bishop CFO Ian Winterburn found himself in that exact situation after a news report incorrectly pictured and gave details of the jeweller’s Queen Street Mall, Brisbane building as being vacant and available for rent. 

The Queensland-based jewellery chain was used as an example of retailers that had become “victims” of exorbitant rents in a story on propertyobserver.com.au, a website that promotes itself as “Australia’s number one property investment website.”

After overcoming his initial “shock” of reading that the company had moved, Winterburn told Jeweller, “We haven’t vacated the premises. In fact, we own the building and are about to spend a lot of money on renovations.”

The online article titled, “Brisbane's Queen Street Mall climbs into list of world's ten most expensive retail rental spaces” referred to a study by US-based commercial property and investment company, CBRE, which listed Sydney, Melbourne and new entrant Brisbane among the 10 dearest cities in the world for retail space.

According to CBRE, Sydney sits at number five, Melbourne at seven, and Brisbane at number nine, climbing two spots from last year.

While the story was simply wrong about Wallace Bishop, Winterburn agreed with much of the rest of the findings in the article.

“I knew Brisbane was up there,” he said, though admitting to being “surprised” that the city had reached the world’s top 10 highest retail rents. The company owns 55 Wallace Bishop stores and six Hardy Brothers stores, most are located throughout Queensland and 12 are in NSW. The 10-storey building at 117 Queens Street forms part of the company’s CBD property portfolio, and Wallace Bishop leases its other sites, he added. 

When asked what he thought of current rental situations, Winterburn said, “The big problem is landlords not setting rents to match retail conditions but trying to match the inflated expectations of fund managers.”

“Unfortunately, during periods of strong retail growth, rents tend to increase very quickly. Conversely, they are very rigid when retail volumes are falling. The lack of flexibility in the market for rents can only be resolved by chain retailers being prepared to shut stores or small retailers leaving the market, which is a very destructive process,” he explained.

“Retailers generally have to set prices to match demand conditions which causes margins to contract during recessions. Rents are like wage costs in this country –rigid.”

Although not mentioned in the news report, Victorian-based retailer Beville’s has previously fallen victim to skyrocketing rents when in 2011 it was forced to close a prime retail store after being outbid by Swarovski for the lease on its Melbourne’s CBD Bourke Street Mall.

Bevilles CEO Michelle Stanton believes Australia’s small population doesn’t have the ability to support very high rents. 

“Many overseas countries have higher populations and the added benefit of a large tourist industry.”

Stanton said Bevilles – with 29 stores Australia-wide – was feeling the impact of high rents. She added that, “Landlords are aware that these are tough economic times and their willingness to discuss rental options, I believe, are based on a number of factors. These factors include demand for a particular retail space, current lease obligations and the willingness of any retailer to adopt new ways to attract customers.”

CEO of National Retail Association (NRA), Trevor Evans, is not surprised that three of Australia’s major cities appear in the CBRE top 10 retail rents list, adding that rents across much of the country are high.

 

“Australia’s economy is stronger than many other countries, especially in Europe, even though we don’t have the population density of other cities.”

He said the high rents don’t reflect the current retail environment, adding that figures published by the Australian Bureau of Statistics showed retailers are doing it tough, only growing at around 3 per cent per annum, while rents were increasing by around 5 per cent.

Evans acknowledged that high rents only reduced retailers’ margins further.

“It might be easier for jewellers with vertical arrangements with branded jewellery, but most jewellers retailing from a variety of suppliers are not in that position. They often have to resort to sales to encourage more sales which only reduces margins further.”

Evans said high rents could be an indication of higher turnover but it was not a guarantee. 

“I know of rents in what we call the prime retail areas where tenants are paying  $5,000 per square metre and sales are only $10,000. But in regional or secondary retail areas, rents are $2,000 and sales are $5,000. So, retailers in the secondary areas are actually doing better.”

To help counter rising rents, Evans said he was telling NRA members to focus on constraining costs. “Renegotiating leases is one way to do that.” 

Josh Loudoun, regional director, retail services for CBRE, creators of the top 10 retail rentals list, gave reasons for the Sydney, Melbourne and Brisbane inclusions.

He said the overall Australian retail market had been buoyed by continued interest from international retailers, however, what was more encouraging was the return of occupier demand from domestic retailers.

Loudoun added that vacancy rates in “super prime” retail markets in Australia’s capital cities remained extremely low with only one to two new leases being signed in any 12-month period.

According to CBRE, Brisbane’s ranking rose two positions to ninth place, with prime rents around Queen Street Mall rising by 15 per cent quarter-over-quarter.