Shopping Centre Operators Face Major Problems If US Is Anything To Go By

Australian retailers including the likes of Myer who are looking to exit shopping centre leases could soon be able to renegotiate lower leases if the trend that is happening in the USA starts to impact shopping centre operators across Australia.

New research shows that empty space in US shopping malls reached a six-year high in the first quarter, adding further stress to regions being hit by a retail earthquake that is shaking up the job market across the nation.

Last week Myer has ruled out placing the besieged retailer into voluntary administration to hasten the exit or renegotiation of $2.7 billion in leases.

While Myer has only $19.9 million in net debt and gearing about 3 per cent, the retailer is moving closer to breaching fixed charges cover covenants in banking agreements after a 24 per cent fall in earnings in the January half.

Market sources have suggested Myer could take a leaf out of the playbooks of retailers such as OrotonGroup and SumoSalad and place the company into voluntary administration to void lease agreements and buy time while it renegotiates rents with landlords.

In the USA the vacancy rate in big malls increased to 8.4 per cent in the first quarter of 2018, up from 8.3 per cent in the fourth quarter and the highest since the fourth quarter of 2012, according to real-estate data firm Reis, which studies 77 metropolitan areas. Meanwhile, neighbourhood and community shopping centres in 41 of the 77 areas experienced an increase in vacancy during the 12 months ending on March 31.

In key locations such as West Coast Plaza in Orange County and in 5th Ave and Broadway in New York big brands are negotiating cheaper rents as the for lease signs go up around their high profile stores.

The numbers show that bricks-and-mortar malls and shopping centres continue to be hurt by shifting consumer spending patterns, particularly the increasing use of online retail.

Amazon’s rapid growth over more than two decades prompted President Donald Trump and some policy experts to question how big is too big last week as Amazon gets blamed for the problems now impacting retailers and shopping centre owners.

Last week, President Donald Trump renewed his attack on Amazon over its business practices and economic impact. “They pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!” tweeted Mr Trump, who also has targeted Amazon chief executive Jeff Bezos, owner of the Washington Post.

Amazon declined to comment on the tweet. The company has pointed out that it now collects sales taxes on its own inventory in all 45 states that have such a tax.