Food retail competition hots up in shopping centres

The concentration on food and beverage retailers in the tenancy profiles of Australian shopping centres has driven up competitive pressures for existing traders, according to JLL’s latest centre manager survey.

Overall tenancy enquiries have increased but more than two-thirds (73 per cent) of centre managers have reported weak or very weak levels of tenancy enquiries from clothing and footwear retailers in JLL’s April retail centre manager survey.

In comparison, most centre managers reported at least a moderate level of enquiries from such businesses, including 16 per cent who reported strong or very strong interest.

None of the managers surveyed reported strong or very strong interest for clothing, footwear, accessories or jewellery retailers.

It comes as centres look to adjust their offers to increase their exposure to tenants whose offers are unable to be replicated online, although the shift has come at a cost.

JLL’s Australian head of property and asset management Richard Fennell says that competitive pressure on food and beverage retailers has increased as landlords adjust their focus.

“A number of centres are shifting their offering to food, services, entertainment and leisure uses and focusing on marketing initiatives to drive customer traffic,” Fennell said.

“In addition to food and beverage operators, it’s health, gyms, medical centres, other medical-related services and insurance that are expanding in shopping centres.

“However, in some centres the amount of food and beverage tenancies has begun to create competition for existing operators. And the expanded offering of the supermarkets has started to result in lower demand from speciality food retailers,” he continued.

Concern over the impact increasing levels of food competition has had on the QSR sector in recent years is longstanding, with health food chain Sumosalad last year opting to put to of its leasing entities into administration amid a dispute with Westfield ANZ owner Scentre Group regarding elevated competitive intensity.

Modest rent increases, more incentives required to secure tenants

Sub-regional specialty rents increased by 1.1 per cent in the year to December 2017, JLL has revealed, while neighbourhood centres reported a 1.2 per cent increase – up from a .9 per cent fall in the year to June 2017.

JLL said there are growing expectations of rent decreases on lease renewals among centre managers, 63 per cent of whom said that a 10 per cent sign-up incentive was needed to secure new tenants in the current retail environment.

Just over one third (37 per cent) of centre managers expected rental growth in the next 12 months, but most believe the increase will only be around 3 per cent. More managers (43 per cent) expect rents to stay about the same, up from 35 per cent in August 2017.

It comes as centre managers develop a rosier picture of the sales outlook in their centres, with 56 per cent expecting positive sales growth over the next 12 months, up 3 per cent from the last survey.

Upwards of 35 per cent of managers are expecting a 3 per cent increase in turnover over the next 12 months, while just over 25 per cent believe sales will remain about the same.

“Planned refurbishments, tenancy profile changes and growth in the trade area were driving factors of the improved trading expectations,” JLL’s director of retail research, Andrew Quillfeldt said.

Although an increased number of centre managers also noted that more specialty tenants were requesting rental assistance as landlords turn to pop-up shops to fill short term vacancies.

Nearly a quarter (23 per cent) of centre managers reported receiving interest from fashion retailers in casual leasing arrangements, while 66 per cent of respondents said they received interest in pop-up shops in general.