Shopping mall owners in the gun as calls for relief grow louder

Tensions are rising in the shopping centre industry with the NSW government calling upon landlords to make allowances for struggling tenants.

Shopping mall owners and retail tenants are again on a collision course. Picture: Mark Stewart

Tensions are rising in the shopping centre industry with the NSW government calling upon landlords to make allowances for struggling tenants as more large malls, including in Melbourne’s huge Highpoint complex, are listed as exposure sites.

Major landlords, led by Scentre Group, which owns the local Westfield empire, have indicated they will focus their relief efforts on smaller tenants, potentially setting off a new round of tough negotiations with larger chains.

Billionaire retailer Solomon Lew has closed all Premier Investments stores in Sydney as the city battles a coronavirus outbreak, but he has kept silent on whether he will seek concessions from landlords after a bruising battle with major shopping centre owners last year.

While essential retailers are remaining open, thousands of other retailers in Sydney have followed suit and closed as people have been urged to avoid browsing in malls and only go out to shop when necessary.

The shopping centre industry is torn between providing immediate support to its tenant base – some of whom have been weakened by repeated lockdowns – and putting off talks until after lockdowns are lifted, which could leave retailers facing heavy rent burdens.

NSW Treasurer Dominic Perrottet on Wednesday encouraged landlords to talk with tenants as he outlined financial assistance packages for retailers and residential tenants.

“Whether you are a commercial tenant, a retail tenant or residential, there will be no lockouts or evictions,” he said. “I encourage all landlords to speak to their tenants … and, if your tenant is struggling, to engage with them in a payment plan, a reduction in rent and we will provide an equivalent offset in terms of your land tax obligations.”

Pendal Group’s head of listed property, Peter Davidson, said malls had again been called upon to provide support. “We’re losing some of the defensive characteristics of property and the government should acknowledge the sector is doing more than its fair share of the heavy lifting,” Mr Davidson said.

Westfield Bondi Junction, where the latest Sydney Covid flare-up appeared to catch hold. Picture: Tim Hunter

But he said the prices of mall stocks were fair and a year ago there had been greater concerns about the potential for falling valuations and income.

Mr Davidson dismissed the idea of the death of the mall: “I don’t think we’re at that stage.”

Leasing executives said there was a hardening of attitudes among some large landlords as they had already provided tenant relief under the Morrison government’s leasing code in earlier lockdowns.

Some commercial property owners are again delaying relief until rules are codified, which has put some retailers under stress.

Categories most at risk include shops selling discretionary items, with fashion considered vulnerable. Some also tip over the $5m turnover mark, the cut-off for smaller businesses where most listed landlords will focus their efforts upon.

Some small landlords have stepped up and supported tenants on the basis that if they cannot pay rent at the moment they could deal with it once the lockdown ended.

“They did that before the government announcements,” one adviser said. But he expressed concern that major landlords were offering rental deferments rather than abatement as tenants sought to recover.

One retail expert said that, while larger malls were affected, smaller and convenience-style malls were flourishing, particularly as supermarket sales were surging, helping landlords like SCA Property Group and Charter Hall Retail REIT.

Some property experts pointed to the potentially shorter time frame of Sydney’s lockdown. “Everyone is pretty relaxed this time around as everyone knows what to do,” one senior executive said.

But the extent of the lockdown could affect the timing of plans to bring Sydney assets to market. Singaporean wealth fund GIC is readying to offer up stakes in Queen Victoria Building, The Galeries and the Strand Arcade for more than $550m for its half stake in the properties.

Attempts to recapitalise a key AMP fund that owns stakes in Sydney’s Macquarie Centre and Pacific Fair on the Gold Coast may also be hampered while NSW’s lockdown is on. But deals on Queensland and Victoria ­assets are pressing on.