Get back to the basics or risk losing your business, warns retail leasing specialist

Pharmacy rents are at their highest in a decade and even outstripping the Consumer Price Index (CPI), according to the Pharmacy Rental Report 2016 Update.

Since 2001 the rate of increase in rents paid by pharmacy has been substantial, with the continuing strong growth in retail property a driver behind the increases, says the Pharmacy Guild of Australia.

While the market appears to be heavily leveraged towards the landlords – with annual rental increases imbedded in every lease – there are those who are bucking the trend, says report co-author of the report and retail leasing authority Phillip Chapman.

Although retailers will never take the “lord out of the landlord”, there are ways of getting a better outcome from the lessee-lessor relationship, says Chapman, who is the director of Brisbane-based company Lease1.

Traditionally pharmacists have handled their own leases, he says, with little if no meaningful research carried out beforehand and very little exposure to commercial trends, bench marking and basic negotiating skills.

Retailers/lessees who take the time and care to understand the key factors of their lease and how to measure try real estate performance will reap the benefits of ongoing lease management when it comes to the rent they pay, says Chapman.

“In an attempt to shake the industry from its slumber in this vital sector… these basics are being re-established as the ‘New Rules of Leasing’, seeking to measure the true value of real estate performance as an integral part of any retail business,” he says.

“This has never been more critical than now for pharmacy with the mounting pressure of price disclosure, added competition and changes to location rules leveraging landlords.

“Add to this the legacy of bloated shop footprints as a legacy of the ‘good ole’ days and the inequities of rent to sales highlighted in the [report] and there will be an escalation of pharmacy closures,” he warns.

According to research:

  • 27%-35% of pharmacies are in sub-regional to regional shopping centres
  • More than 75% of these lease too much space and are paying unnecessary rental
  • A staggering 80-85% suffer from occupancy costs well in excess of industry KPIs

“Those retailers and lessees who adopt the ‘New Rules of Leasing’ are finding that over time, their occupancy costs are softening and realising the hidden business value uncovered in their lease and the relationship with their landlord,” Chapman adds.

A workshop for pharmacists at the WA Guild Branch Conference will focus on the ‘New Rules of Leasing’ – August 2016. For more information contact Phillip Chapman on pharmacy@lease1.com.au