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RETAIL: Small Franchise Rental Debate

 





Recent Gauteng Business News

X2in5 is gaining momentum in its quest to help smaller shopping centre tenants achieve more equitable rentals. The Competition Commission announced an investigation into the conduct of large retailers where the issue of rentals charged by shopping centres to national anchor tenants will be put under the spotlight.

This development indicates that things are beginning to move in the right direction for smaller retail tenants, and is a welcome support for the relentless lobbying of x2in5 and other concerned parties.

Subsequent to a Franchise Think Tank event earlier this year, a white paper was published which was as a result of a joint effort between the foremost stakeholders of franchising and input from industry experts on franchising and the economy.

One of the speakers, Stephen Walters, a property expert from Fernridge Consulting, offered some insights into this issue. He explained that “When a new shopping centre comes on stream, its owners calculate the total return they need to achieve to operate profitably. What is problematic is the allocation of rentals among tenants. Large national
retailers, who take up the bulk of the space, are charged R50 or less per m2 per month. To make up the shortfall, developers then charge smaller tenants anything up to R570 m2.”

As matters stand, new franchises can either set up shop in one of the older centres that are almost certain to go downhill fast, or they can try to secure space in one of the newer centres. Should they take this leap of faith, they will soon find that in the short term, promised foot counts won’t materialise. This may put them out of business long before
traffic reaches projected levels.

The debate about the disparity in rental charges is gaining momentum. A recent article in the Financial Mail examined the expansion of existing shopping centres and the proliferation of new ones. Quoting various sources, the point was made that during the period between 1993 and
2009, the number of malls with more than 30 000 m2 of lettable space has risen from 36 to 116. It would seem that there is currently an oversupply of retail space.

Even shopping centre developers themselves are recognizing the problem. Speaking at the recent SACSC conference, Louis Norval, co-developer and manager of some prize-winning centres, called the rental gap between
large and small traders immoral.

The white paper suggests that if only the larger tenants would pay R10-15 per m2 more, rentals charged to the smaller operators could drop to around R350 m2 without affecting shopping centres’ overall income.

Anita du Toit, FNB Commercial Banking franchising specialist, says, “There has been a number of concerned parties who continue to make noise about this, and applaud it as a move in the right direction. Here’s hoping that the right people are listening. We will continue to track developments and make sure that the stakeholders stay informed.”


 
 
 
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