Retail Shopping Centre Rents Post Covid
FLNT Pty Limited (www.flnt.com.au ) which is part of a $AUD 100 million prop tech fund of EGX has recently joined the Property Funds Association. FLNT is the owner of Leaseinfo Retail (www.leaseinfo.com.au ) – the largest online provider of retail leasing data in Australia and Leasinfo Fuel – the largest online provider of Fuel, Highway and Associated Retail.
Leaseinfo analysed specialty (defined as stores under 400m2) rents for all NSW Westfield centres. The 2021 rental levels have returned to 2018 pre- pandemic levels as shown in Graph 1.
Leasing Trend Analysis
Graph 1 – All speciality Rents from 2017 to 2021 for all NSW Westfield Centres
Centres Selected: Westfield Bondi Junction, NSW, Westfield Chatswood, NSW, Westfield Hornsby, NSW, Westfield Hurstville, NSW, Westfield Liverpool, NSW, Westfield Miranda, NSW, Westfield Mt Druitt, NSW, Westfield Eastgardens, NSW, Westfield Parramatta, NSW, Westfield Warringah, NSW, Westfield Penrith, NSW, Westfield Tuggerah, NSW, Westfield Kotara, NSW, Westfield Burwood, NSW, Westfield Sydney, NSW
Usage Selected: All Specialties (excludes Major, Mini Major, Commercial Office, Industrial Warehouse, Hotel, Showroom, Automotive, Signage)
Note: The average rent is calculated as a net face rent.
However, the number of registered leases with a 2+ year term fell in 2021 by more than 50% compared to 2019 levels, as shown in Table 1. Mr Fonteyn Executive Director of FLNT said “this was to be expected given that the mandatory code of conduct was in place during 2020/21 and many tenants were simply not doing new deals.
Table 1 – Data for all registered leases in NSW Westfield Centre
|Total Speciality Stores Registered Leases||4532||4397||4235||3935||3482|
|Total Speciality Stores||4753||4582||4394||4082||3616|
|% in Centre for Category||95%||96%||96%||96%||96%|
|No of leases renewed in year||594||554||490||313||241|
|Average shop size/m2 of renewed leases||120||136||145||156||136|
|Average rent/m2 of renewed leases||1,820||1,664||1,729||1,296||1,631|
|Average lease term||5.90||5.92||5.94||5.95||6.01|
|Average Rental Increase p.a.||4.58%||4.53%||4.06%||4.08%||4.58%|
|% of leases expiring within 1 yr.||15%||15%||14%||18%||21%|
|% of leases expiring within 2 yr.||30%||29%||31%||36%||41%|
|% of leases expiring within 3 yr.||43%||45%||48%||54%||60%|
Table 1 shows that the average speciality rent in all NSW Westfield Centres is approximately $1,630/m2p.a net face in 2021, which is similar to 2018 levels. The average shop size is sitting at 136m2, which consistent with previous years. Rental escalations have remained steady at between 4% to 4.5% per annum which is largely due to Westfield rents being linked to CPI.
So far 2022 rental levels for speciality rents in NSW Westfield Centres are well above 2021 levels, indicating the demand for retail space is outstripping supply.
Mr Fonteyn expects rental escalations in 2022 to increase dramatically in Westfield Centres due to the high CPI figures which could bump passing rents up by between 7-9% rental escalations over the 2021 year, as almost all Westfield leases are indexed to a minimum of 2.5% plus CPI and some centres like Westfield Sydney indexed to CPI plus 3%.
The increased rents would need to be supported by increased sales to remain sustainable. Retail sales per capita are above the 10-year average as shown in Graph 2.
Graph 2 – Australia, Retail sales per capita
Source: ABS (powered by FLNT)