Friday 14 September 2012

Why It Will Be Difficult To Justify A Rent Increase In 2012

Last year’s rent increase attracted a fair share of criticism from traders, especially after they had explained the current economic difficulties being faced and presented a petition to management. The petition was signed by over 200 GMT traders, requesting either a rent decrease or for rent increases to be placed on hold.  There are indeed many factors that need to be considered when deciding on how rents should move and this year we believe a number of those factors are working in favour of no change.

First and foremost is the state of retailing generally and the impact on rents. Premier Investments Group (Just Jeans, Peter Alexander, Jay Jays, and Smiggle) recently announced that they were closing 50 shops and seeking rent reductions in the remaining sites. In June this year A spokesperson for a 63 store jewellery chain stated -“The conversations we’re now having are at the stage of reducing rents at renewal time. The incidence of unrealistic increases has evaporated. They [landlords] might still send you a letter asking for an increase but you can go back saying, ‘well that’s not going to happen under these economic conditions, we’re not going to give you an increase when retail sales are in decline”. In May this year, Bloombergs reported “Australia’s biggest shopping-center operators, Westfield Group, Stockland and GPT Group, are lowering rents for new stores while existing tenants call for cuts as major-mall sales drop for the first time in a decade.”
These are all relevant events but one closer to home was the announcement by The Melbourne City Council on 28th August. In its financial report for 2011-2012 the council reported a better than expected performance by QVM and a special dividend to Council resulting in a favourable variance of $0.236 million. Further, The Future Melbourne (Finance & Governance) Report released on 11th September stated “QVM’s performance for the period ending 30 June 2012 resulted in an annualised return on investment of 10.38 per cent, above the established benchmark return of 4.56 per cent (150 per cent of the bond rate).”

What is significant in those announcements is that QVM management had given the need to offset rising costs as the primary reason for raising rents last November. We are extremely pleased to see that our money has adequately covered "running costs" and more in 2012. Traders made it clear last November that a rent increase was totally unacceptable without a significant improvement in trade at trader’s stalls. That improvement hasn’t happened and we feel it is about time that there was accountability at all levels for what is happening at the coal face. On that measure, it is difficult to justify a rent increase.

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