Tenants have more bargaining power

Landlords willingto give discountsduring downturn

WHEN a retailer at Raffles Place saw her shop lease expire recently, she was all ready to give up the shopfront in anticipation of a rental increase. Even if the rent remained the same, she was not prepared to stay on.

“We’ve been making losses so we were ready to move out.

“I told the management that unless I see my rent halved, I’m not going to renew the lease,” the retailer, who declined to be named because of confidentiality clauses in the shop’s contract, told Today.

To her surprise, the landlord offered to cut her rent by 40 per cent — and the retailer decided to renew her lease.

Today understands that landlords both big and small have been giving cuts to their retail tenants on the quiet — despite industry outcry recently suggesting otherwise.

“Right now, landlords are willing to talk,” said PropNex’s head of investment sales and commercial department Charles Chua.

“We expect landlords to be more willing to adjust rents from the second quarter of the year as spending power is increasingly affected by the economic downturn.”

Mr Chua added that some landlords were “worried about tenants going to lower-costs areas, so we see an increasing number of landlords trying to retain their present tenants”.

This is particularly so for buildings located in the central and downtown core regions. Suburban malls are more resilient to rental changes, as there is a captive crowd.

Still, not all shopfronts are eligible for lower rentals.

“The retail property market is a very unique one in that the rent is very much more location-sensitive than in the residential or industrial sectors,” said Knight Frank’s deputy managing director Danny Yeo.

“The direction the shop is facing, the storey it is on and the unit itself are all factors influencing the rent of the shop.”

A shopfront facing a road junction, an entrance, a MRT station or along a walkway can command twice the rental rate of another shop in a less favourable location on the same storey of the same building. And there are almost always takers for shops at prime locations that are deemed to be able to pull in the shoppers — and the dollars.

“If there are people willing to rent the space at the same or at an even higher price, why would the landlord lower the rent unless you have a strong relationship? They’re running a business after all,” said Knight Frank’s Mr Yeo.

“But if you’re off the main track or on a upper floor, in this period of volatility, then landlords will be more willing to give you a general discount.”

For the retailer who received a surprise rental cut from her landlord, her shop is not in a prominent location although there is some human traffic.

Source: Today, 12 Mar 2009