Landlords, tenants strike flexible agreements in inflation economy

Landlords and tenants are working together to take account of rising inflation by striking flexible commercial lease agreements in retail developments currently under way.

Bayleys national director retail Chris Beasleigh says that after several years of historically low, stable inflation the landscape has changed radically.

He is working with landlords and retail tenants eager to open for business at several big developments.

After years of 2-3 per cent inflation, the current rate has soared to 7.3 per cent. The Reserve Bank this week delivered its seventh straight interest rate hike for 2022, raising the official cash rate by 50 basis points to 3 per cent, and is forecasting a rise to at least 3.75 per cent by November.

Beasleigh says putting together deals is a different prospect from a few months ago, and it’s more difficult due to Covid-19 related supply chain logjams. “There’s a double whammy at the retail end because of rising fit-out costs for the retailer plus delays in materials when parts come from overseas.”

On the positive side, unemployment remains low and retail spending is strong. “Retail developments in the suburbs or near a supermarket in growth suburban areas remain popular with developers and retailers.

“Anything in the suburbs or near a supermarket in residential growth areas is popular with developers and retailers. In Auckland, around the edges of the city, and in highspending places like Tauranga where there are more houses, there is more retail spending.

Part-working from home is still quite strong at many businesses, which boosts suburban shopping.”

Retail developments under way include:

■ East Coast Heights neighbourhood centre at Silverdale, 30km north of Auckland, next to a soon-to-be-developed large format retail centre

■ Retail units at Pinehill Central, Greville Rd, North Shore

■ Ormiston Town Centre, South Auckland, over 1700ha where a number of tenancy agreements have been concluded

■ Timaru’s Countdown and Bunningsan-chored Showgrounds development.

Rentals at these developments range from $450/sq m to $650/sq m.

“It used to take about three months for a handover to the tenant from the building consents stage. Now people are looking at five months for handover. During that time the retailer can’t open, so it’s been a major hurdle.”

To save time developers are providing more of the shell fitout, Beasleigh says. “The most important thing is to make sure everyone works out the numbers and the construction costs. Costs used to be largely determined by the land but now it’s the inflationary construction costs.

“We explain to people before they develop what they need to do to mitigate problems so that everyone knows from the beginning of a project. There are a lot of hurdles but because we’re aware of them we can tell the developer or retailer what’s happening and help them navigate through them,” he says.

■ Full report: oneroof.co.nz