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The Retail Market Segment Is Witnessing Change Both In Market Terms and Legislative Amendments

I have been very proactive in relation to this market segment, primarily as I am a “Specialist Retail Valuer” and am on the panels of the Victorian Small Business Commission, Australian Property Institute and the Real Estate Institute of Victoria, with Retail being a sector that I have also serviced in regard to advisory as the Lessee and Lessor representative, coupled with over thirty-five (35) years’ experience within the sector.

Some twelve (12) months ago, I provided a blog predicting if you like the “2019 Retail Property Market Outlook” www.fvg.com.au/2019-retail-property-market-outlook/

With complete honesty I referred to the heads of major entities throughout Melbourne and Australia, providing their personal grab on the market for the next twelve (12) months. I also included my personal beliefs of what was to come. Hindsight is a wonderful tool, but with reference to pretty well all points provided, they have come through to fruition.

The major points highlighted by myself being:

  • Decline in general Retail consumption
  • Bricks and mortar becoming uneconomical
  • Probable rental reductions *
  • Changing “risk profiles” for Tenants within strip centres
  • Disruptive sector with Landlords required to reduce rents
  • Operating costs
  • Lessee bargaining power with Lessor *
  • Shorter lease terms *
  • Aggressively renegotiate rentals down *
  • Consumer spending dictates Retail market

All those points clearly provide an insight as to what I thought may happen in 2019.

I again want to highlight that most, if not all, of these points will again be on the agenda for 2020. 

In saying this, the purpose of this paper is to provoke both Lessee and Lessor to be aware of the fundamentals of real estate investment.

I strongly recommend that the Lessee, regardless of where they are within their current lease terms, define the viability of the current passing rental level and if not achievable in the medium to long term, do not procrastinate, but seek assistance in renegotiation of the lease, or sub-leasing or in simple terms, do what is needed to make it work. 

In particular, for those tenancies within pretty well all Melbourne strip centres, I notice that no agencies are providing market evidence currently in relation to established strip centres, but from our limited analysis, vacancies have dramatically risen in the last six (6) months and it will get worse.

For those Lessees that are experiencing difficulty and need assistance with any points of 2019, especially those with an asterix of which will allow continuity of your business and livelihood, you need to take action.

Most of the real estate market, except Retail, has some “light at the end of the tunnel”. In saying this, even the Retail sector has seen some recent changes to the Retail Lease Act under the Retail Leases Amendment Bill of 2019, with the requirement of Landlords to give information to Tenants in a more timely manner, importantly, to create a new early rent review process for Tenants.

The “blue sky” for the Lessee is Section (12) of the Amendment of Retail Leases Act 2003: 

Section 12 (1A) “Landlord to give Tenant certain information before option to renew lease expires 

(b) rental payable for the first twelve (12) months under any renewed term of lease

(c) availability of an early rent review under Section 28A” 

To discuss or action any matters in relation to Retail real estate, immediately contact
Mark Ruttner on 0411 419 674 

First Valuation Group
Ground Level, 18-22 Thomson Street
South Melbourne, Vic 3205

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