Retail tenants call for rental reductions

The current economic situation being experienced in South Africa is putting pressure on the retail industry, resulting in some retail tenants battling to meet contractual rental payments.

This is according to Marc Edwards, general manager of Spire Property Management, who says that they are seeing a shift in the market in their retail portfolio.

“Office rentals in areas such as Cape Town’s Southern Suburbs remain consistently high due to space shortages in AAA office buildings. However, with consumers tightening their belts, retailers are taking strain and some are are therefore starting to call for relief in the form of lower rentals.”

“Landlords need to take a realistic look at the strategic value of individual tenants in a shopping centre. It is extremely important for a centre to maintain the right tenant mix and to avoid having a lot of space standing vacant, so it makes sense to try and assist valued tenants through difficult times. Having tenants close their doors will benefit no-one.”

“One way a Landlord can assist,” advises Edwards, “is to implement a turnover clause with lower basic rentals.” This allows the tenant more flexibility in tough times with a lower basic rental but allows the landlord to benefit progressively, as the tenants turnover exceeds a predetermined figure.

“It is also very important for tenants to take a realistic look at their business and decide whether they should be located in a shopping centre, or whether they could achieve the same benefit by being located in a small factory or other premises where the rental will be less.

“Additionally in these difficult times, retailers need to strategise about ways to attract extra feet through their doors,” says Edwards. “This needs a cooperative effort between landlords and tenants – effectively, landlords are stakeholders in each shop, and can play a major role in assisting to attract more customers into the centre.”

“Today, more than ever, owners, tenants and property managers need to work together to find ways to make the centre more attractive and ensuring that shoppers’ needs are properly met.

As an example, Spire recently conducted a tenant reshuffle at popular Dean Street Arcade in Cape Towns’ upmarket suburb of Newlands.

“By moving some of the tenants around in the centre we have maximised their exposure to potential customers,” explains Edwards.

Part of this re-shuffle included improving the tenant mix by placing an upmarket pharmacy in the arcade. This is the perfect type of tenant to include in a shopping centre as they tend to trade well in all conditions and bring extra shoppers to the centre which will be of benefit to other tenants. It is these types of strategic decisions landlord’s will need to make more and more.

“Spire’s property management approach is one of offering a very personal, tailor-made service. We look intensely at extracting value from the properties we manage and also at maximising vacancy reductions for our valued clients,” explains Keith Craddock, Executive Director of Spire. “By adapting to current economic circumstances, landlords can ensure tenant retention and ongoing rentals.”

For more information contact Spire Property Management on (021) 685 4020

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