Shop Vacancy Rates in Armidale
Growing up in a country town, it was hard to appreciate how the development of out-of-town shopping malls affected inner-town small businesses. However, my recent trip to Armidale has highlighted this, with shop vacancies throughout the main shopping strip. It got me thinking about the consequences for retailers and the long-term damage to a central business district.
This issue isn’t just on my mind. Head of Colliers International, Michael Bate, has said that shopping centres on the outskirts of rural towns are dragging away the traditional CBD shopper. According to a report by the ABC, inner-town retailers in locations such as Mackay and Rockhampton are struggling to keep their heads above water.
Using Armidale as a case study, there are four major “satellite” developments, excluding mini malls, away from the CBD. My recent walkthrough found there were 18 vacant shops just in the main pedestrian mall – only a snapshot of the total vacancies. Several of these shops had been untenanted for many years and there was a lack of vibrancy as a result of the empty shops.
A business closing in an area can be devastating for those businesses that surrounded it. We refer to this as the ‘cascade effect’. Generally, we see this occurring in locations where each business has some dependency on one another, driving mutual interaction between neighbours. Once one business shuts its doors, the location starts to look bleak. Shoppers may view the location as being sad, tired or old. This inevitably leads to more closures as consumer interest dissipates, creating a cascade effect of insolvency.
We have worked with retail landlords on both sides of this equation. Where there is a risk of a tenant leaving, it is always preferable to have a replacement option or to work with the tenant rather than risking the departure.
We recently assisted a retail tenant in a unique location in the Sydney hinterland. Having worked with the tenant on viability, we could only make the location work with a 75% reduction in rent. As the site was itself a unique offering and a drawcard for the balance of the retailers in the location, we were concerned that its closure would create a cascade effect. Regardless, it was a business case of realistic rent or departure. The landlord refused to budge, so the tenant closed.
72 hours after the closure, the landlord was approached by another tenant who advised that, due to the closure of our tenant, they would be walking away from the tenancy. Their reasoning was that the site would soon turn into a zombie location. Now, it’s only a matter of time until the cascade effect is in full swing.
Rents detached from reality
Rents in any facet of retail are always an important consideration. From what I saw, the ‘market’ rents in Armidale were comparative to locations with 4 to 6 times the foot traffic. For example a 36m2 shop, away from the major thoroughfare is offered at $18,000 per annum or $500 per square metre – city level rents. Failing to align the rent to the reality of the town has meant that not only is the shop vacant, but potential tenants are dissuaded from opening a business or making a necessary investment in the town.
But what about the landlord? The rents are only meeting the market! Well, the market appears to be leaving. I would argue that the number of vacancies suggests there is a commercial incentive for a landlord to bring rents to an affordable level.
The Role of Council
A location like Armidale has suffered a range of decision makers that have failed to align the community long-term interests with sensible development (thus explaining the plethora of unfilled retail development). Development for development’s sake has meant that in the long term, the town has suffered from a detached shopping precinct that has made it difficult for retailers to thrive.
A number of years ago, a decision was made by the council to move Armidale’s library away from the town centre. This was another example of a lack of foresight regarding decision-making. Retailers in the CBD had traditionally relied upon foot traffic that the library would bring. The site remains vacant to this day. Reading the council’s position, some years after the decision was made, it is sadly comical that they claimed the site would be repurposed.
Parking has also been an issue in Armidale’s CBD. An uncommercial council policy towards parking has discouraged, rather than encouraged, a strong retail outlet. Whilst some changes were made to incentivise consumers, it was done so long after the damage was set. Customers were unlikely to return after one bad experience.
Councils have an important role to play in the improvement of the local economy. Taking steps to actively encourage tenancies rather than rewarding sites for remaining untenanted is a start. Equally, development incentives that have encouraged unbridled expansion need to be curtailed against a financial impost against landlords with vacant properties, which has been the emphasis in the retail market.
We are seeing landlords with larger portfolios being active in the development of their portfolios, reducing the rents to bring them in line with the market. They’re also taking steps to ensure the viability of tenants and any surrounding businesses. For tenants there has been a push to improve lessor-lessee communication. It’s become important for tenants to communicate often and openly with their landlords. Tenants are now pushing forward a position to ensure that there is a realistic position regarding rents and what is achievable and affordable.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)
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