Retailers to face rising rents as Baker’s Delight claims landlords want increase of up to 70%

Bakery franchise Baker’s Delight says it is coming under pressure from commercial property owners, with some proposing rental increases of between 40-70% in some locations, the company’s general manager of property has said.

But CB Richard Ellis senior director Jennifer Williams says those increases are way out of the ordinary and warns that while specific circumstances must be considered, retailers are still under pressure.

“They are starting to increase, but nothing like that. Certainly I know that retailers have been hurting at the moment so to do that to them seems a bit harsh,” she says.

Gerry Gerrard, general manager for property, projects and supply chain at Baker’s Delight, says landlords have been increasing their first proposals for rents, and in some shopping centres these increase requests can be as high as 70%.

“What we found was that in 2007, the bullish nature of requests for increases slowed up. In 2008, we saw the same approach and in the middle of 2009, there was a collective thought among landlords that the GFC was over, and pressure needs to increase to get the productivity out of tenants.”

“What we’re seeing is that the initial offer can be between 40-70%, and we’ve had higher as well. We’ve also had about 12 rental decreases in the year to 30 June, but there is definitely more pressure.”

He says the increases come at a time when the retail industry is continuing to struggle with lower retail sales and discounting, and Baker’s Delight trade has only increased by a small amount compared to last year.

“We are not moving at a racing pace here, sales are only marginally above last year. And we’re determined to advise these landlords of that fact.”

The chain operates 650 stores across the country, but most of the pressure is being seen in larger shopping centres. Gerrard says the company still maintains good relationships with its landlords, but also notes that these types of rate increases aren’t realistic.

“The problem is that when you’re in a shopping centre, you have no choice. So we have to be smarter about we do, make sure we have the facts about the mini market so we’re geared to go in and educate the landlords.”

Gerrard warns other retailers have noticed the same types of bullish requests, and that they are “determined” to do something about the problem. “I don’t want to see vacancies,” he says.

“There comes to a point where you just can’t accept a 40% increase. You will end up closing in three years and that isn’t good for anyone. The GFC isn’t over, it’s tough out there in retail land and rents need to reflect that. You can’t ask for these types of increases in 2007.”

Williams points out these increases are far above what the rest of the retail market should be seeing.

“In the prime spots in the main core areas of cities, we’ve seen a 0.2% increase over the September quarter, and over the year we’ve seen a 6.4% increase. That’s Australia wide. In shopping centres in more neighbourhood suburbs, we’ve seen a 0.3% increase over the quarter and 1.4% for the year.”

Williams also says increases like the ones Gerrard quotes are unrealistic given the retail property market has managed to stay particularly buoyant during the GFC.

“Retail is a little different from the other markets, because it’s probably more the industrial market that is beginning to improve. Retail has maintained its balance throughout the year because of the stimulus. It didn’t have the sharp decreases other sectors had.”

“This is the first time we’ve heard of any large increases, and certainly at those types of rates,” she said.