Retail property: Leasing tips and costs
Rent is a cost almost all retail businesses share – but it’s not the only expense that comes with leasing. Apart from base rent, tenants are often required to pay variable outgoings - expenses that cover the operation, maintenance or repair of the building or shopping complex, such as security, electricity and water expenses.i For spaces in shopping centres, these costs may also include fees for centre management and maintenance of public amenities and car parks.ii Some leases may also require you to pay for costs associated with the advertising and promotion of the shopping centre.
Centres may have building standards for shop fit-outs and conditions of the lease may even require tenants to pay for the cost of removing the fit-out when the lease ends. Be wary of landlords asking for key money - a benefit paid in exchange for granting, renewing, extending or assigning the lease. This is not a cash bond and is illegal under some state and territory retail tenancy legislations.iii Check your state's retail tenancy legislation to see whether penalties apply.
Before a lease can be signed, the local council must grant approval of the business to be run from the shop. Permitted use is a clause that should be included in every commercial or retail lease. It describes the type of business you can run from the shop and is to be negotiated with the landlord prior to signing the lease.ii
It's worth talking to the landlord in detail about the various costs and conditions involved in a lease. Don't hesitate to ask about previous tenants: knowing whether the previous business was a success or failure could potentially save you from making the wrong decision.
Mid-city rental spaces can be very attractive to small business owners. But if you want to be situated in the middle of the CBD, how much can you expect to pay in rent? Here are some recent figures from Savills Research and other sources for rental rates in cities across Australia.
Sydney: Retail spaces in Pitt St Mall in Sydney's CBD can go for as much as $13,335 per square metre (/sqm) per annum!iv Nearby trendy suburbs can be even more expensive, with Surry Hills costing an average of $13,592/sqm and Woolloomooloo $13,988/sqm.v Further out, in suburbs such as Manly, you can expect to rent prime properties for between $1800/sqm to $3500/sqm.vii
Melbourne: Retail rent rates in the Melbourne CBD can average as high as $6670/sqm.iv A restaurant on level one of Collins Street would pay a gross rent of $700/sqm, while retailers on the ground floor of the same location would pay anywhere between $4,500 – $5,100/sqm.vii
Brisbane: In Brisbane's CBD, retail spaces average around $4050/sqmvii, while Queen St mall itself is slightly more expensive, with a median cost of $4704/sqm.viii
Canberra: Rental rates for A-grade properties in Civic and the city range between $2000/sqm to $7500/sqm for prime ground floor spaces.ix Waterfront locations in Canberra city can fetch up to $10,000/sqm.
Adelaide: In Adelaide's CBD 5000 postcode, rents for retail spaces average $3100/sqm, while rents in rundle mall’s Adelaide Central Plaza can reach between $4000-5000/sqm.x
Perth: Perth is one of Australia’s only capital cities where retail rents are falling. Despite this, rents in Perth CBD still average $3780/sqm, while sub-regional rents fell to $838/sqm, and neighbourhood centres dipped to a low of $650/sqm.xi
Apart from occupancy costs, running a business also involves marketing expenses and fit-out costs. In the event your business is hit by an unforeseen incident, such as a fire, storm or earthquake, it's important to have insurance to protect the investment made in your business.
At Allianz, we have a range of insurance covers to help retailers get back on their feet in the event of unfortunate, unforeseen circumstances, such as fire, storm, lightning, malicious and accidental damage. Get a small business insurance quote online today.
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i NSW Department of Industry, 2017, Small Business Info Kit,
ii Victoria Government, Retail Leasing in Shopping Centres, viewed 20 February 2018,
iii Department of State and Regional Development, The Lease Agreement, NSW Government
iv Sydney Morning Herald, 2016, Sydney, Melbourne, in Top 10 Most Expensive Retail Zones in the World
vCommercial Real Estate, 2017, Potts Point Set to be the Commercial Property Hotspot in Inner Sydney
viPine Property, Manly Corso Named as One of Australia’s Top 10 Retail Strips, viewed 20 February 2018
vii Inside Retail, 2017, Melbourne CBD Records Heightened Demand for Retail Space,
viii Commercial News, 2017, Pitt Street Mall Among World’s Most Expensive Retail Strips,
ix Property Observer, 2017, Canberra’s Secondary Locations Provide Good Entry Level into Retail
xFinancial Review, 2017, BRW Richlister Gain Pandora, Lululemon, for Adelaide Central Plaza
xiFinancial Review, 2016, Sydney CBD Retail Rents Surge, but Perth Landlords Battle for Tenants