7 Occupancy costs (PDF - 106 Kb) - Productivity Commission

landlord is contemplating an expansion of the centre. Without this clause, a landlord is
not in a position to maintain the competitive edge of the centre.
It is clearly in the interests of the tenants of the centre (as well as the landlord) for the
landlord to be able to maintain the competitive edge of the centre. (confidential
submission)
Tenants, however, suggested that there were often instances where centre
redevelopment adversely affected their business. The Commission was informed
that tenants may be required to relocate to accommodate the redevelopment, or they
may experience depressed sales as disturbance of the redevelopment temporarily
reduces foot traffic. It was also submitted that some tenants experience a decline in
trade after a redevelopment, particularly if there has been an expansion in the
shopping centre and tenants face additional direct competitors. One participant,
Bruce York, argued that:
… landlords generally do not accept when they refurbish or extend a shopping centre
that the impact on existing tenants businesses should be considered as part of the cost
of these works. While some state regulations make reference to compensating tenants
there is no agreed formula for so doing. My observation has shown that for reasonably
significant landlord works the tenants businesses will be impacted up to 5 per cent
assuming a well managed change, but some landlords do not properly control their
building contracts and a loss of business up to 25 per cent and beyond can be expected.
(submission no. 18, p. 6)
In circumstances of redevelopment and relocation, some retailers argued that there
should be access to rent review or short-term compensation in circumstances of
changed conditions. The Pharmacy Guild of Australia, for example, suggested that
the legislation should provide for access to a rent review on a market-value basis,
where there is refurbishment of a complex, particularly where it continues over a
long period of time and impedes traffic flow into a business (submission no. 109).
These provisions already exist in most State retail tenancy regulations.
7.2 Evidence on occupancy costs
Occupancy costs of retailers are explored in this section, together with the case for
regulating such costs.
Occupancy costs incurred by tenants
Occupancy costs (per unit of lettable retail space) vary substantially between
retailers according to the location of the premises leased and the retail amenity
provided. On average, occupancy costs are lower outside of shopping centres, with
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