Tenants Ask for Rental Reductions

Tenants Want Rent Reduced

An article published on the Cape Business News website draws attention to the plight currently being experienced by tenants in the retail industry. The current economic situation in South Africa has resulted in some tenants struggling to meet monthly rental payments.

These indications are according to Marc Edwards, general manager of Spire Property Management, who says that a market shift has been seen in their retail portfolio. “Office rentals in areas such as Cape Town’s Southern Suburbs remain consistently high due to space shortages in AAA office buildings. However, with consumers tightening their belts, retailers are taking strain and some are therefore starting to call for relief in the form of lower rentals,” says Edwards.

Edwards adds that, “Landlords need to take a realistic look at the strategic value of individual tenants in a shopping centre. It is extremely important for a centre to maintain the right tenant mix and to avoid having a lot of space standing vacant, so it makes sense to try and assist valued tenants through difficult times”. He has a point in that having tenants close their doors will benefit no one at the end of the day.

When it comes to ways that landlords can assist tenants is to enforce a turnover clause with lower basic rentals. This will give tenants more flexibility when times are tough, but allows the landlord to benefit progressively when the tenant’s turnover exceeds the set figure.

Edwards also suggests that tenants take a “realistic look at their business” and then make an informed decision about where their premises should be located, whether it should be in a shopping centre or whether they could achieve similar benefits in a small factory or other premises where rentals are relatively low.

Essentially, attracting more customers needs to be a collaborative effort between landlords and tenants, as landlords are effectively stakeholders in each shop within their complex and can play an important role in bringing more customers to the centre. Edwards insists that, “Today, more than ever, owners, tenants and property managers need to work together to find ways to make the centre more attractive and ensuring that shoppers’ needs are properly met”.

A prime example would be the Dean Street Arcade in Cape Town’s upmarket suburb of Newlands, where some of the tenants were moved around in the centre in a bid to maximize their exposure to potential customers. A strategic decision included improving the tenant mix by placing a pharmacy in the arcade, which has a tendency to trade well in all conditions and will attract more shoppers to the centre, consequently benefiting other tenants.

The information in this article is courtesy of Cape Business News (“Tenants Call for Rental Reductions”, 7 July 2008).

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