Retail tenants and the Australian Retailers' Association (ARA) – an industry lobby group – are pushing Australia's major shopping centres to make sensitive details of lease agreements public in order to give potential tenants important information regarding lease rates at specific shopping centres.
Reviews are underway in Victoria, Queensland and New South Wales to establish whether a register of retail leases should be created to establish a fairer 'playing field' in the industry. Russell Zimmerman, ARA's executive director, stated that "the reality is that small to medium retailers are paying higher rent due to the lack of transparency that is forcing up rental costs for the whole sector (including major retailers)."
ARA has also highlighted that whilst rents in Australia remain "high by international comparison," the additional costs are being passed onto consumers.
According to The Australian Financial Review, the Shopping Centre Council of Australia – which represents major landlords such as Westfield Group (ASX: WDC) and Federation Centres (ASX: FDC) – has retaliated against these arguments by stating that the cost of setting up such a register would counteract the proposed benefits to shop owners. Furthermore, public exposure of any incentives received by retailers would "send up a red flag that this retailer is in trouble", which could begin damaging reputations.
Foolish takeaway
Should the register be created, landlords will lose some of their power in enforcing lease rates for each retailer and will likely receive less rent revenue as a result. On the other hand, lower lease rates would influence more retailers to lease stores in shopping malls, which would decrease vacancy rates. Regardless, analysts from Morgan Stanley noted that "overall, we think this will mean rental growth (in the) longer term will be much more tied into how the retailers perform."
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
