It’s official: we are a nation of shopaholics and committed foodies. After months of uncertainty and gloomy economic forecasts, large parts of the retail sector led by food and beverage are returning to life far quicker than expected as restrictions slowly lift.
Where lockdowns are being eased, foot traffic in retail precincts is fast approaching pre-COVID-levels. Spending is up on whitegoods, electronics and homewares across the board – and for retailers and landlords to analysts and leasing agents, it has come as a welcome surprise.
Founder and principal of leading boutique retail leasing agency Retail Realm Partners Ben Tremellen is among them.
“In the past fortnight it has become clear many retailers can now see the light at the end of the tunnel,” he said. “In that time they’ve started to rework their strategies and look at how they will operate as we go into the new norm. It’s been apparent right across Melbourne, Sydney and Brisbane even though the cities are all moving at different speeds on lifting social distancing restrictions.”
Rising optimism
One of the more striking displays of retail tenant optimism was shown by the response to a 500 square metre restaurant site offered last month in Melbourne’s coveted Flinders Lane precinct. Despite COVID-19 and a 25 per cent rent increase, Retail Realm agents were “bowled over” with inquiry during the premises’ three-week EOI.
“We ended up with 15 groups lining up at a time I thought it would have been hard to move a restaurant space,” Mr Tremellen said. “It shows location and opportunity are still key - COVID or no COVID – and also that restaurateurs at the moment aren’t scared of good opportunities. They are more concerned about retaining staff until we get back to normal.
“It is clear to me everyone has quickly bounced back into ‘let’s make things happen’ mode and ‘how do we get deals done?’.”
The turnaround is refreshing compared to the bunker-down mentality as the pandemic swept through the country. “Only two months ago CEOs of major companies especially those in the larger takeaway food sectors were working out strategies around which stores were best to keep open to keep money coming in,” Mr Tremellen said. “But then they went further into full lockdown survival mode. That went on for two to three weeks as they saved every dollar they could.”
Business is now moving forward – and encouragingly, landlords are embracing the freshly passed laws affecting retail leases. The laws were hastily introduced last month to provide financial relief for tenants during COVID-19 and cover those who qualify for the Commonwealth’s JobKeeper payment scheme and also have a sub-$50 million turnover during 2018-2019. The new legislative rules run for six months from April 24 and end automatically on October 23 unless amended in the meantime.
Another seeing positive sentiment on the rise as communities emerge from staged lockdowns is Ray White Commercial, the agency reporting “significant uplift in leasing transaction” in the past week alone. Retail leasing activity dominated the agency’s deals, the bulk of which occurred in the food and beverage sector driven largely by new businesses requiring premises. New business enquiry was described as “remarkable” and many existing businesses were pursuing plans to expand or retract space requirements.
Creativity the key
Creative restructuring of both existing and new lease agreements is the key to striking deals within this new climate said Mr Tremellen, himself a former executive for several global agencies with experience working on some of Australia’s most high-profile retail assets. “Those who will do best now are the experienced operators able to handle a depressed market and get deals across the line depending on financial models,” Mr Tremellen said.
As per the government’s new legislation, leasing arrangements both new and existing are incorporating potential rent turnover during COVID, others on extended fit-out periods. “As builders are still allowed on sites many landlords are taking advantage of the downtime during COVID and upgrading, reinventing their offering,” Mr Tremellen said.
Staggered rent payments and delayed commencement dates are also currently prevalent in leasing agreements. One such deal struck in this vein by Retail Realm agents was for a 145 square metre premises at 190 Queen Street. Takeaway food kitchen Foodie Fox signed a 5-year lease for the Melbourne CBD location at annual rent of $150,000. COVID-19-driven sweeteners included in the agreement see Foodie Fox granted immediate access to its new premises even though its rent will not kick in until the Victorian government relaxes social distancing restrictions. Also enshrined in the new lease is a proviso for Foodie Fox to receive another four-month incentive period.
Landlords should also be bracing for more change to come Mr Tremellen notes: COVID-19 lockdowns have only accelerated online shopping which is leading to a rise in the need for logistics and premises to fit. “Current dynamics have accelerated online shopping to the point it will become the new norm much faster and landlords will need to accept another reset of retail rents.”