Retailers fighting back in landlord negotiations

This article was originally published by Christopher Kelly for Ragtrader (13 October 2023).

Australian retailers are pushing back on ‘take it or leave it’ retail leases as bargaining power shifts following the COVID-19 pandemic.

This is according to property lawyer Andrew Grima, who has more than 25 years of experience in the field.

“In the legal landscape, retail leasing was very stable with little change from the late 1990s,” Grima said.

“Post-COVID, that has shifted rapidly with the growing need for tailored solutions in an increasingly complex and dynamic retail environment.”

A drop in demand for store space, legislative amendments and big retailers moving their focus from physical stores simply shifting stock to providing an enhanced customer experience is behind the change, according to Grima.

“The CBD environment is not as busy as it was; there’s still an abundance of hoarding up, while the number of Covid-related leasing disputes is dropping off,” Grima said. “I think both landlords and retailers recognise we’re entering a new era.

“So, the really savvy retailers are starting to negotiate much more creative agreements which provide them with a lot more flexibility such as the ability to negotiate an early exit if a new store doesn’t meet expectations.”

Grima said the impending opening of the world’s largest Lego store in Sydney’s Pitt Street Mall was part of the trend towards experience-based shopping, which was also reshaping leasing.

“If you look at that Mall, it has traditionally been among the most expensive slices of retail real estate in the world. Increasingly though the focus of the stores there and in other prime sites will be more about advertising, brand enhancement, customer experience and less about per metre profitability.

“That requires a different leasing agreement from the traditional sales-driven rent model.”

While store leasing was changing, industrial and warehouse sites remained in high demand despite a drop off in online shopping.

“In Sydney in particular, the industrial sector is still very robust post-COVID and that comes down to a shortage of supply verse demand".