The changing face of shopping centres in Western Australia
The rise and rise of the online retail environment has significantly impacted the physical retail space to which we have become used to. Retailers and shopping centre owners are having to refocus given the cyber disruption. The change is fast paced. A recent commercial/retail development completed in 2012 is already being refurbished to include new restaurants, a bar precinct, multi-screen cinema, conference facilities and a potential hotel. It is understood that a small car yard is to be included as part of a major shopping centre refurbishment within the metropolitan area. How do shopping centre owners ensure they keep their customers loyal and interested and tenants happy? They do this by regularly upgrading and refurbishing the centre and the shops. Complexities may arise as a result of the need to attract profitable retailers with secure leases to ensure a regular income stream. For this to occur, the legal restrictions arising from Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act), the “difficult” economy and the terms of each individual lease need to be considered as part of the shopping centre owners’ overall offering.
What needs to be done to get Kana back to a shopping centre?
Kana is a theoretical person (who may bear some resemblance to an author of this article). Kana is:
• Thirty something years old.
• A working mother with two young children.
• Time poor.
• Contrary to the classic generalisation of women –she does not particularly like shopping. This dislike exponentially rises when her children accompany her and become bored.
• Dislikes parking, crowds and queues.
• Does like buying clothes and shoes (perhaps the latter too much - her husband and bank manager will attest to this).
• Has worked out which brands and sizes almost always fit her.
• A proficient and regular internet shopper.
The truth is, the shopping centres are losing these type of shoppers to the convenience of internet shopping – what can be done to get Kana out of cyberspace and back into “real” shops?
Australian Shopping Centre Facts and Stats1
• 1st modern shopping centre – Brisbane, May 1957
• Centres developed very rapidly in Australia because their development coincided with increased immigration and a construction boom
• An average of 24 shopping centres per year have opened in Australia since 1954
• Australia is viewed, internationally, as being innovative with the development and redevelopment of shopping centres
• 18.7 million sqm of GLA for retail
• On average shopping centres are redeveloped every 7 – 10 years
Reminders: Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA)
(Retail Shops Act)
• A landlord must notify a tenant of the date on which its option to renew will no longer be exercisable. The notice must be given at least six months but no more than 12 months before the last date for exercise of the option. If a landlord misses this timeframe, the latest date for the tenant to exercise its opinion and, if necessary the date for the further term, will extend out.
• The regulations to the Retail Shops Act contain a prescribed relocation clause which may be used without the need for SAT approval, alternative relocation clauses may still be used, with the approval of the SAT. The Retail Shops Act also sets out the requirements for a relocation clause that may apply after the Tenant has been in occupation of the premises for more than five years.
• Provisions in a lease that require a tenant to refurbish or refit the premises are void unless the clause is detailed regarding the nature, extent and timing of the required refurbishment or refitting works.
• Tenants are entitled to not less than a five year term, excepting for a term of six months or less and it is approved by SAT.
• Landlords must provide valuers with information in relation to retail shops in the same building or centre as the premises, to assist the valuer in making a determination of the market rent.
New Terms, Concepts and Buzz Words for Shopping Centres
> lifestyle destination > dining destination > dining precinct > entertainment and leisure hubs > focus on community enjoyment and involvement
Redevelopment and its interaction with the Retail Shops Act
Shopping centres need to be regularly reinvented and reinvigorated to maintain and attract key tenants and high flow of consumers who are spending. This requires the right tenancy mix for demographics of the local area. It is a constantly moving feast. The Retail Shops Act creates many potential roadblocks for centre owners and managers to achieve optimal outcomes from regular redevelopments. In some respects, it undermines the supremacy of freehold title to that of leasehold title. The Retail Shops Act is designed to protect the consumer (the tenant). At the same time, it can sit uncomfortably next to the anti-competition laws. Retail tenants are generally guaranteed a five year term. In a large shopping centre, it is near impossible to align the anticipated expiry dates of the leases to enable a redevelopment to occur. Additionally, vacant shops for extended periods of time are not conducive to the perception of a thriving and “must go to” centre. It is a difficult and sensitive process for shopping centre owners to coordinate a redevelopment. Issues include:
• termination of leases, so there is minimal loss of rent and compensation payable, particularly to anchor tenants;
• development approval, and ensuring it does not lapse before construction;
• construction, including builders and contractors, as well as those builders and contractors undertaking the fit out works for incoming tenants;
• if any tenants remain during the construction, there are challenges of minimising the disruption to their rights under their lease and abatement of rent and outgoings;
• ensuring there is enough certainty as to the finished redevelopment so that the landlord can provide a potential tenant with a disclosure statement;
• ensuring fit out periods and commencement dates given to new tenants are consistent with the construction timeframe.
As a result of consumer desires, policies under Directions 2031 and various planning policies from all levels of government, there has been a rise in mixed use developments. Combining residential with retail and/or commercial and, increasingly, hotels or short stay apartments is becoming common practice. These are now key objectives for a range of strategic sites within the metropolitan and some regional areas. This in turn leads to more complicated outgoings calculations for the managing agents and landlords. The relatively new definition of “group of premises” and application of that term within the Retail Shops Act, can require additional building surveys to be carried out and distinct apportionments made for certain outgoings. Additionally, many mixed use developments are strata schemes. This adds another layer of complexity having to reconcile strata levies under the Strata Titles Act 1985 (WA) with the strata outgoings payable under the lease (as regulated by the Retail Shops Act).
Lease registration and caveats In certain circumstances, for both the landlord and tenant, it can be beneficial if the lease is registered or caveated. Generally:
• a lease for a term of more than five years, will not be binding on another party that claims a registrable interest in the land (i.e., purchaser, mortgagee, other lessee) unless the lease is notified on the landlord’s certificate of title to the land on which premises is located. This is done by registration of the lease or the lodgement of a caveat;
• a further term, if properly exercised and following commencement, is the current term of the lease;
• any options to renew, which have not yet commenced, need to be specified in the lease or caveat to protect the right to review the lease term in the future;
• any lease term then current for not more than five years where the tenant is in actual possession, is binding on the buyer and landlord following transfer of the freehold interest; and
• a lease can only be registered if the initial term exceeds three years.
These considerations do not however, override the terms of the Retail Shops Act regarding the “guaranteed” five year term. The parties conduct post registration of the transfer of the freehold interest, mortgage or other registrable instrument can imply adoption of the lease or agreement of a new lease. In other circumstances, for both the landlord and tenant, it can be beneficial if the lease is not registered or caveated. “Non-enforceable” leases can be attractive for:
- landlords wishing to sell the underlying land for redevelopment;
- a buyer that wants to redevelop;
- where the rent under the lease is under market value; and
- tenants who wish to terminate their lease early.
“Enforceable” leases can be attractive for:
- landlords wishing to sell an operating shopping centre;
- an investor buyer that requires certainty of rental income;
- where the rent under the lease is at or above market value; and
- tenants who require security of tenure and/or may wish to sell their business in the future.
Shopping and Tourism2
> 27% / 26% of Australians travel interstate/intrastate to shop
> 51% of New Zealand visitors to Australia indicate their prime motivation is shopping
> 1 in 2 New Zealanders who travel to Australia to see friends and family will visit a shopping centre
> Australians see their holiday time as a time to splurge, including on fashion
What will entice Kana back into a shopping centre?
• The integration of dining precincts, not just food halls in shopping centres. Quality food outlets, comprising separate premises that can take you out of the “shopping centre”. In this respect, some natural light improves the consumer “experience”.
• Tenant mix, that suits the key demographics of the local area and customers.
• Strategically placing public spaces and kids play areas within the centre to ensure that there are regular opportunities for parents to encourage good behaviour by giving the children some free time at regular intervals.
• Sensible layout with easy access from a number of entries so that quick access can be gained to a particular section.
• Connectivity to other community and social areas. Ideally, within a larger “activity centre”.
• Clean restroom facilities (as a four year old, Kana chose the pre-primary she wished to attend based solely on the condition of the toilets).
• Efficient service within the shops.
What other options shoppers would like to see:
- Free Wi-Fi.
- Interesting décor and decoration.
- Fitness centres.
- Medical centres.
- Farmers’ markets and/or organic produce.
- Easily accessible public transport.