Shopping centre landlords urged to spend big
Retail landlords may need to ramp up spending on their malls to ensure they can keep anchor tenants that are considering closing stores amid a struggling retail environment, according to Macquarie analysts.
The research comes after Myer’s strategy day where the department store highlighted its focus on reducing its store footprint as part of its turnaround plans and revised down its targets.
Myer’s shares have fallen 47% over the past year as it competes with the entrance of international fast fashion brands, while lacklustre wages growth is making consumers cautious and shoppers have been shifting to online purchases.
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Macquarie says it is difficult for Myer to start a large store rationalisation plan given its $2.7 billion of lease commitments.
But Myer will try to close, reduce space or improve the commercial position of 32% of its store base, Macquarie says.
“Myer has closed stores at assets where specialty sales productivity was less than $9000 per square metre,” the analysts say.
Shopping centres are being urged to spend money on upgrades in order to retain major tenants.
“We have identified 10 assets with a department store tenancy where specialty sales productivity is below this threshold, with Vicinity Centres likely to be more impacted by number of assets.”
By property trust, 22 Myer stores are in Scentre Group-owned malls, with 10 in Vicinity, five in GPT and two in Stockland, the research said.
“Given Myer is also viewing its footprint by categorisation of mall (A, B, C, non-metro) there is a risk to rising defensive capex spend in A and B malls to ensure the landlord is in a position to renew anchor tenant leases.”
Across the country, a 10% reduction in space taken up by department stores and discount department stores would be a 1% to 2% headwind to REIT earnings prior to capex spending to repurpose the space, Macquarie says.
“While the update from Myer highlighted continued challenging conditions, the sheer quantum of lease liabilities means the department store/discount department store issue will bumble along for some time.”
This article originally appeared on www.theaustralian.com.au/property.
