Big retailers buying stores but smaller outlets told to be cautious

10:09 AM Wednesday February 11, 2015 Colin Taylor

Great North Road shops.

Large retailers are purchasing their own stores enticed by a hot commercial property market and low interest rates, reports Retail News.
However, the article by David Maida quotes Paul Keane, director and executive chairman of RCG Realty, as saying it doesn’t make much sense for smaller and less stable retailers to do the same.

Keane says smaller retailers need to make the vital calculation between lease payments versus mortgage payments. They might also miss out on foot traffic if they leave a major shopping centre.

According to Retail News, in the traditional landlord/tenant arrangement, landlords prefer a contract of 10 years or more. But in today’s quickly changing economy, most tenants want a five-year lease with a five-year right of renewal to give them more flexibility.

On the plus side of ownership, smaller retailers who own their own premises can change the category of their merchandise without referring to stipulations in their rental agreement.

“If you have 500 square metres of retail space full of books and you wake up one morning and the Kindle has arrived, then you’ve got to be able to change that,” Keane says.

For the more established retailers like the large DIY companies and major supermarkets, premises, ownership started to become the norm over the past five to six years.

“One of the reasons why major retailers particularly have been looking at this option is that they are no longer locked into a major shopping centre owner who controls their destiny.”

He says that while a booming commercial property market, particularly in Auckland, and low interest rates have encouraged ownership, other factors are at play with large-chain retailers such as Farmers and the Warehouse.

“I think because the retailers have matured, they’ve ended up with a far better opportunity of buying in locations because they’ve got more confidence.”

But not all retailers have that confidence. Apparel, and particularly children’s clothing retailers, are less inclined to purchase their own premises.

If a retailer does want to own, the primary considerations are location, demographics and market share, Keane says.