Pharmacy owners should be negotiating lower rents in line with sales declines, says expert
Pharmacy business owners should be renegotiating lower rents in line with sales decline and shopping centre values, says Phil Chapman, director of retail leasing authority Lease1.
“The stress across pharmacy has been entrenched for some years now with the inflated size of their premises, and the ongoing effect of price disclosure which is impacting their capacity to pay the rents,” Mr Chapman tells AJP.
Sales declines are an added cause for concern, with a recent article from NAB describing the retail sector as being in recession.
“The April figures came out and the year-on-year was only 0.2% and this has been an ongoing trend,” says Mr Chapman.
“Retail sales growth has been flat for a considerable period, and this has got direct reflection on [pharmacists’] capacity to pay rents.”
Due to the ongoing reduction in retail sales, valuations in Australia’s real estate markets continue to decline and shopping centres are among those who are taking the heaviest toll from the impact.
However the risk is right across all landlords, not just in shopping centres.
Landlords are having to do better deals, and they’re also suffering from the failure of chains over the last few years, says Mr Chapman.
“Landlords are going to have a very serious re-think on the size of pharmacy stores and they need to start looking at getting that right sooner rather than later – before the pharmacies get into too much stress,” he says.
“Don’t get me wrong, there’s still a lot of good pharmacies out there and the businesses are running well but very rarely do we see pharmacies achieving their industry benchmarks and occupancy cost ratios, and that’s a sign that stress is right across the sector regardless of size or location.”
Meanwhile pharmacy owners need to assess their current situation.
“They need to benchmark their current occupancy costs against the Pharmacy Rental Report data, and see exactly where the numbers sit. And they should use those numbers as a catalyst to have a conversation with their landlords,” Mr Chapman advises.
“They should also be assessing how long their leases have left to run, the expiry profile of their lease. In particular if they’ve got two years or less to run, they really should be addressing renewing that lease early. They should be getting involved in that now.
“Though as it stands, there will still be tough choices for both landlords and retailers in the coming months. Negotiating for the reduction of lease rates isn’t going to be easy for both parties, but it can likely be a crucial first step to the survival of the entire shopping mall sector.”