Rental deals swing in favour of retailers

● Last year, the retailer was paying a negative 12% in rental reversion, “the first time I think we’ve ever gone negative”, says Anthony Thunström, CEO of TFG.

The retailer’s average lease period is five years, and it renewed one-fifth of its leases last year.

“The average rate was 12% less than what we were paying the year before. They were too expensive to start with and this reflects the current state of the economy, which we don’t expect to rebound over the next 12 months.”

TFG has about 800,000m² of retail space across the country, second only to Edcon. Property owners are no longer in the pound seats as tenants reduce space or close stores; Edcon is closing about one-third of its space nationally.

Thunström says it’s not only in SA that the company is seeing rental reversions. “In Australia, rentals got totally ridiculous. In some cases rentals in Australia were 20% of turnover, even 22% or 23%. It’s unrealistic.”

He says over the past couple of years leases have been renewed at rates up to 20% cheaper.

Overseas retail markets are, more than in SA, feeling the impact of consumers abandoning the malls and shifting online.

While the UK high street is under huge pressure with administrations, liquidations and closures knocking retailers, TFG continues to roll out more stores in that country.

But the model is different, in that rentals are turnover-based.

“We used to sign five-year leases in the UK, we’re now signing 12- or 24-month leases so you’re not signing up for any long-term risk and these are profitable.”

Thunström says the clothing brand Hobbs, for instance, didn’t have an adequate number of stores.

“They’ve never had enough money to spend on stores in the right places. So every time we open a new store it’s profitable because rentals are based on turnover only.”