Retail property: Leasing tips and costs


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Retail property: Leasing tips and costs

Prime retail spaces - like the Queen Victoria Building in Sydney's CBD - can be beneficial to business but expensive to rent.

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 expensesii. For spaces in shopping centres, these costs may also include fees for centre management and maintenance of public amenities and car parksii. Some leases may also require you to pay for costs associated to the advertising and promotion of the shopping centreiii.

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 legislationsiv. 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 leasev. It describes the type of business you can run from the shop and is to be negotiated with the landlord prior to signing the leaseiii.

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 $13,600 per square metre (/sqm) per annumvi! Other places in the CBD can be rented for between $500 and $4,000/sqm. In suburbs such as Newtown, Bondi, Balmain, and Manly, you can expect to rent prime properties for between $800/sqm to $2000/sqmvii.

Melbourne: Retail rent rates in the Melbourne CBD generally range from $1,200/sqm to $4,000/sqm, with occupants in Bourke Street mall paying anything between $6,500/sqm and $10,000/sqmviii. Rents along the famous Chapel Street can be between $600-$750/sqm (in the Windsor area) to $1,300-$1,500/sqm (in the South Yarra area)ix.

Brisbane: In Brisbane's CBD, retail spaces are rented for between $750/sqm and $1,700/sqmx. For properties in Queen St Mall, the rates range from $2,700/sqm to $7,000/sqmx.

Canberra: Rental rates for A-grade properties in Civic and the city range between $390/sqm and $460/sqm, while B-grade properties go for slightly lower, ranging from $350/sqm to $385/sqmxi.

Adelaide: In Adelaide's premiere retail area, Rundle Mall, occupants can pay between $2,000/sqm and $3,700/sqmxii. Retail strips such as Jetty Road, King William Road and Parade Street cost between $450/sqm and $1,250/sqm to rentxiii.

Perth: If you want to rent in the prime shopping area Hay St Mall you can expect to pay between $2,200/sqm and $5,000/sqmxiv. Other areas of the CBD range from $650/sqm to $2,500/sqmxiv.

The cost of retail space depends on the location and size of the property leased.

Apart from occupancy costs, running a business also involves marketing expenses and fit-out costsi. In the event your business is hit by an unforeseen incident, such as 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~.

~We do not provide advice on this insurance based on any consideration of your objectives, financial situation or needs. Policy terms, conditions, limits and exclusions apply. Before making a decision please consider our product disclosure statement. View PDS update (privacy notice).

i Productivity Commission, 2011, Retail tenancy leases, Australian Government, http://www.pc.gov.au/__data/assets/pdf_file/0005/113774/12-retail-industry-chapter9.pdf, p.260

ii Productivity Commission, 2011, Retail tenancy leases, Australian Government, http://www.pc.gov.au/__data/assets/pdf_file/0005/113774/12-retail-industry-chapter9.pdf, p.261

iii Department of State and Regional Development, The Lease Agreement, NSW Government, http://www.smallbusiness.nsw.gov.au/__data/assets/pdf_file/0019/22294/02_The_Lease.pdf

iv Shopping Centre Council of Australia, Submission To The Review Of The Trade Practices Act 1974, http://tpareview.treasury.gov.au/content/subs/094_Submission_SCCA.rtf p.5

v Moores Legal, 2011, Permitted use - watch out you’re your lease says, http://www.mooreslegal.com.au/uploadedFiles/Newsletters/PropertyBriefing/nl/Property_Briefing_November_2011.pdf

vi Department of State and Regional Development, The Lease Agreement, NSW Government, http://www.smallbusiness.nsw.gov.au/__data/assets/pdf_file/0019/22294/02_The_Lease.pdf

vii Herron Todd, White, 2011, Retail strip market link Sydney, http://www.htw.com.au/Research_Information/Retail-Market-Link-Sydney.pdf p.5

viii Savills Research Victoria, 2012, Quarter times Melbourne retail, Savills, http://pdf.savills.asia/australia-retail/savillsresearch-quarter-times-melbourne-retail-q3-2012.pdf p.2

ix Hopkins, P., 2012, City retail space tight, but in suburbs it’s a different story, The Age, http://www.theage.com.au/business/property/city-retail-space-tight-but-in-suburbs-its-a-different-story-20120624-20wf8.html

x Savills Research Queensland, 2012, Quarter times Brisbane retail, Savills, http://pdf.savills.asia/asia-pacific-research/australian-research/australia-retail/savillsresearch-quarter-times-brisbane-retail-q3-2012.pdf p.2

xi Savills Research Australian Capital Territory, 2012, Quarter times Canberra office, Savills, http://pdf.savills.asia/asia-pacific-research/australian-research/australia-office-/savillsresearch-quarter-times-canberra-office-q3-2012.pdf p.2

xii Savills Research South Australia, 2012, Spotlight: Adelaide CBD Retail, October 2012, http://pdf.savills.asia/asia-pacific-research/australian-research/australia-retail/savillsresearch-spotlight-adelaide-cbd-retail-q3-2012.pdf p.6

xiii Preston Rowe Paterson, 2011, Property market report South Australia, http://www.prpaustralia.com.au/contentUploaded/ResearchReports/Property%20Market%20Report%20-%20South%20Australia%20Final.pdf p.6

xiv Savills Research Western Australia, 2012, Quarter times Perth retail, Savills, http://pdf.savills.asia/asia-pacific-research/australian-research/australia-retail/savillsresearch-quarter-times-perth-retail-q3-2012.pdf p.2