Businesses struggle to afford Melbourne rent hikes

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In Williamstown, about 10 kilometers southwest of Melbourne city centre, Lisa Malkin Hill helps run a family clothing boutique that has traded on Douglas Parade for 27 years.

Last year she said they had no choice but to move about 200 yards around the corner as they could no longer afford the rent.

She said they found it very difficult to negotiate with their landlord when the pandemic hit.

“We needed their help,” she said.

“Since we had been such a good tenant for so long, would they agree to work with us so that we could both survive?”

After months of negotiation, the company was finally able to reach a confidential rent relief agreement with the landlord.

The owner said COVID has also affected him badly.

Lisa Malkin Hill says the storefront she left in Williamstown remains vacant a year after moving her business.(ABC News: Scott Jewell)

Some suburban rents are like city prices

When Ms. Malkin Hill’s lease ended, they left the property in search of more reasonable rent.

“Rents are high in Williamstown. They’ve gone up a lot,” she said.

Local merchants and real estate agents said some of the rents in Williamstown during the Douglas parade looked like “town prices”.

This means up to $80,000 to $100,000 per year.

“There’s a lot of pressure on retail anyway. It just wasn’t sustainable,” Ms Malkin Hill said.

Almost a year later, their old shop remains vacant. It’s not the only one in Williamstown, and it’s a story that plays out across Melbourne, on the high streets and in the city centre.

Owner Joe Barbone, owner of Shop 22 in Melbourne’s Royal Arcade, can’t quite understand.

A dressed man stands in a shopping arcade.
Joe Carbone says he lowered the rental price he was asking for his showcase at Royal Arcade.(ABC News: Chris LePage)

“I don’t understand the logic of keeping rents high, because the market is not the same,” he said.

His shop at Royal Arcade has been empty since just before the pandemic, when his tenant moved out.

For more than two years, he has posted a sign in the window offering big discounts to attract a new tenant.

“I think the rent we’re quoting goes back to the rent level of 2011 or 2010,” he said.

He said the rent for a high-end single storefront with a first floor in the Royal Arcade would have reached around $9,500 per month ($114,000 per year) at the end of 2019.

He estimates it’s now worth closer to $7,000 a month ($84,000 a year).

But it’s only now that he seems to have found a tenant.

Outer suburbs spared some of the pain

In some growing suburbs like St Albans, 17 kilometers northwest of the city’s CBD, the high street is still busy.

My Trinh owned two businesses in the city but sold them just before COVID-19 hit.

A woman sits at a table and smiles at the camera.
Business owner My Trinh said rent was still high on St Alban’s busy Alfrieda Street, but it was still busy to make it worth it.(ABC News: Crystalyn Brown)

She said she was grateful to be in the suburbs.

“It’s really hard to do business there, and the rent is really high. I feel more comfortable doing business in the local suburbs,” she said.

She said the rent was still high on St Albans’ busy Alfrieda Street, but it was always busy to make it worth it.

“We never have vacant stores here because always someone is ready to come and try it out,” she said.

An outdoor shopping street.
Pedestrian traffic in Alfrieda Street in St Albans has returned to near pre-pandemic levels.(ABC News: Kate Ashton)

Three commercial properties on Alfrieda Street recently sold for between $2.3 and $2.5 million, including one that exceeded the reserve price by $1 million.

Annual rents for these properties range between $55,000 and $70,000.

Fitzroy Estates manager David Bourke said the competitive sales reflected the area’s prosperity and continued strong investor demand for commercial properties, even with market changes caused by the pandemic.

Business advocates call for lease ombudsman

Back in the CBD, there are signs that things are looking up.

In June, data from the City of Melbourne showed that weekend pedestrian traffic in the CBD was up 106% from 2019 levels.

During the week, it’s still only 77% of what it was before COVID-19.

During the pandemic, state and federal governments put in place special rules to protect tenants — they couldn’t be evicted and landlords had to negotiate things like deferring rent.

Now the settlements have ended and it’s time to pay it back.

A rental sign.
Rental signs are commonplace in Williamstown, in south-west Melbourne.(ABC News: Scott Jewell)

Franchise Council Chair Mary Aldred represents the interests of thousands of small business owners and is calling for more rules to help commercial tenants negotiate during this time.

“I’ve heard examples of up to $100,000 on small business tenants having to be paid, you know, within two weeks or they’re going to change the lock,” she said.

She wants a federal ombudsman to oversee these kinds of disputes.

“Most owners are trying to do the right thing. But we need a modern approach and better regulation of the behavior of owners who are not trying to do the right thing,” he said. she declared.

Victoria’s Small Business Minister Jaala Pulford said business owners and landlords should try to resolve issues between themselves.

“We encourage commercial tenants and landlords to work together and negotiate issues in good faith whenever possible,” she said.

“The Victorian Small Business Commission provides free information and advice to tenants and landlords and can provide low-cost dispute resolution services.

“The government continues to provide small businesses with advice, mentoring, mental health and wellbeing services and financial advice.”

Increase in the number of “ephemeral” tenants to try to fill empty stores

In the once bustling Fitzroy Street strip in St Kilda, which was struggling with vacancies even before the pandemic, a group is trying to create new spaces for young creatives instead of leaving shops empty.

Nonprofit Renew Australia has been working in the area for two years, placing start-ups and creatives in empty stores for little or no rent.

A woman stands in a mall on the street.
Renew Australia CEO Angela Simons is helping fill vacant storefronts in some areas.(ABC News: Kate Ashton)

They say their model works because it recognizes that many landlords are unable or unwilling to reduce rent because it can affect the value of their property.

Indeed, commercial properties are valued taking into account the rent charged.

This means that if someone is not relying on the tenant’s lease payments to cover costs such as mortgage payments or rates, they may choose to leave the space vacant to maintain their property value based on higher rent, rather than lowering the rent, which could reduce its value.

“It’s easier to give away your property for free or sub-license than to reduce the rent,” said Renew Australia CEO Angela Simons.

Owner George Vasiladis loaned space in his empty store for 9 months and said he was happy to give a start-up a boost.

“The rent was about $80 a week, so they could get started, which really doesn’t cover the costs,” he said.

“What’s the alternative, I can have a vacant store or I can have someone there, and at least I know I made a difference for them.”

He said it didn’t make him any money but allowed potential tenants to see what the occupied space would look like.

He has now found a new commercial tenant for this space.

“It’s not a long-term solution, but at least gets us through this time of the unknown.”

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