Amid a subdued retail landscape, Australian landlords are forced to offer discounted rents in order to attract new tenants.
Speciality store sales growth continues to stall and retailing remains subdued, forcing Down Under's biggest shopping centre landlords to slash rentals in order to secure new tenants.
GPT Group said that the leasing spread on new leases signed at its 17 shopping centres have retreated by 10%. Westfield, Australia's largest shopping centre owner, has given up 6% on new leases.
The restructured Centro group, which hold AUD 6.6 billion worth of retail malls under management, said that leasing spread slid by 2.2%, with Charter Hall Retail the only listed retail trust (REIT) to achieve growth on new leases. Charter Hall's spread rose 3.7%, reported the Australian Financial Review.
A key metric that gives an indication of the strength of the retailing sector and the overall economy, the leasing spread represents the percentage increase over rental rates on existing leases versus rental rates on new and renewal leases.
Investment site Wealthmanagement.com noted that leasing spread narrow and "some even go into negative territory" during periods of economic weakness.
Westfield co-chief executive Steven Lowry said that the subdued retailing environment had seen lease incentives increase, but added that Westfield was cautious in their usage.
The drop in new lease spreads comes as retail sales figures recorded their biggest fall in almost two years, declining by 0.8% in July, according to ABS data.
Merrill Lynch research revealed that speciality retailers managed average comparable sales growth of just 0.6% over the past financial year to the end of June.
However, Colliers International said that despite the drop in leasing spreads, the investment outlook for shopping centres anchored by supermarkets and food operators remains healthy.
Tags: Shop for rent, Business space, Income properties