Article in The Age on the impact of online trading on retail shopping centres

Hello all, and welcome back to the new legal year.

During January, The Age published an interesting comment by an economic analyst about the impact of the shift towards online shopping on rent for retail shops, particularly in light of the recent announcement by Myer that it does not intend to renew a number of its leases. The author, Michael Pascoe, suggests that this can only have a downward effect on retail shop rents.

He suggests that a number of the current long-term vacancies are caused either by:

1. landlords who are unwilling to respond to changes in the market; or
2. inflexible lenders who will require repayment of part of their loan in the event that the rent is reduced (the value of a commercial rental property is usually calculated as a multiple of its rent).

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He also suggests that some of the larger landlords are cutting deals on rent to protect tenants and that this may have a flow-on effect on second- and third-tier properties.

A copy of the article is available here.

It builds on press on shopping centre rents in August and September last year (see previous posts here and here).

This is relevant to practitioners for both landlords and tenants in a number of ways:

1. it increases the uncertainty of a rental determination if a lease provides for a review to market. Recent changes to the market will not yet be reflected in many determined or agreed market rents as reviews typically take place every five years. Consequently, opinions may vary significantly between valuers as to the impact of recent changes to the market. Practitioners for both landlords and tenants should advise their clients of this uncertainty and consider making submissions to a determining valuer in the event that the rent cannot be agreed;
2. a threat by a tenant to ‘walk’ or refuse to renew a lease may have a greater impact (both in the context of a dispute and of an insolvency); and
3. the lack of replacement tenants (or replacements at comparable rent) may have an impact on whether landlords commence actions for possession and rental arrears now or delay until circumstances improve.