Business changed during COVID, but Lisa's rental didn't. So he moved to the corner
In Williamstown, about 10 kilometers southwest of Melbourne’s city centre, Lisa Malkin Hill helped run the family clothing store that traded in Douglas Parade for 27 years.
Last year, he said they had no choice but to move about 200 meters round the corner because they could no longer afford the rent.
He said they found it very difficult to negotiate with their landlords when the pandemic hit.
“We need their help,” he said.
“Given we’ve been good tenants for a long time. Will they work with us so we can both survive?”
After months of negotiations, the business was finally able to reach a secret lease assistance agreement with the owner.
The homeowner said COVID had also affected him greatly.
Some suburban rental like city rates
When Ms Malkin Hill’s lease ended, they left the property in search of a more reasonable lease.
“The rent in Williamstown is high. Prices have gone up a lot,” he said.
Local traders and real estate agents say some of the rents in Williamstown at the Douglas Parade are like “city prices.”
That means up to $80,000 to $100,000 per year.
“There’s a lot of pressure on retail. It’s not sustainable,” said Ms Malkin Hill.
Nearly a year later, their old shop remains empty. This isn’t the only one in Williamstown, and it’s a story replicated in Melbourne, on the streets and in the city centre.
Landlord Joe Barbone, owner of Shop 22 at Melbourne’s Royal Arcade, couldn’t understand it.
“Keeping rental prices high I don’t understand the logic, because the market is not the same,” he said.
His shop at Royal Arcade has been empty since before the pandemic, when the tenants moved out.
For more than two years, he’s had a sign in the window offering big discounts to attract new tenants.
“I think the rental rates we quoted return to the rental rates in 2011 or 2010,” he said.
He said the premium single storefront rental price with the first floor at Royal Arcade would reach around $9,500 per month ($114,000 per year) by the end of 2019.
He considers it now worth close to $7,000 per month ($84,000 per year).
But only now did he seem to have found a tenant.
The outer suburbs are spared from pain
In some thriving suburbs such as St Albans, 17 kilometers northwest of the city’s CBD, the main roads are as busy as ever.
Trinh I used to have two businesses in town but sold them just before COVID-19 hit.
He said he was grateful to be on the outskirts of the city.
“It’s very difficult to do business there, and the rents are very high. I feel more comfortable trading in the local suburbs,” he said.
He said rents were still high on busy Alfrieda St Albans Street, but there were always plenty of people around to make it worth it.
“We’ve never had an empty shop around here because there’s always someone willing to come in and try it out,” he said.
Three Alfrieda Street commercial properties recently sold for $2.3-$2.5 million dollars, including one that exceeded the reserve price of one million dollars.
Annual rent on the property is between $55,000 and $70,000.
Fitzroy real estate agency director David Bourke said the competitive sale reflected a growing area and strong demand from investors for commercial properties even with the changing market caused by the pandemic.
Business advocates call for tenant ombudsman
Back in the CBD, there are some signs that things are getting better.
In June, City of Melbourne data showed weekend foot traffic in the CBD was up 106 percent from 2019 levels.
For a week, that’s still only 77 percent of what it was before COVID-19.
During the pandemic, state and federal governments put in place special rules to protect tenants—they couldn’t be evicted, and landlords had to negotiate about things like deferring rent.
Now the rules are over and it’s time to pay them back.
Head of the Franchise Council Mary Aldred represents the interests of thousands of small business owners and is calling for more rules to help business tenants negotiate during this period.
“I’ve heard examples of up to $100,000 on small business tenants that need to be paid, you know, in two weeks, or they’ll change the locks,” he said.
He wants a federal ombudsman to oversee disputes of this kind.
“Most landlords try and do the right thing. But we need a modern approach and better regulations for the behavior of landlords who don’t try and do the right thing,” he said.
Victoria’s Minister for Small Business, Jaala Pulford, said business owners and landlords should try to sort things out among themselves.
“We encourage commercial tenants and landlords to work together and negotiate issues in good faith whenever possible,” he said.
“The Victorian Small Business Commission provides free information and advice to tenants and landlords and can provide low-cost dispute resolution services.
“The government continues to provide advice, assistance, health and mental welfare services to small businesses, as well as financial counseling.”
Improved ‘pop-up’ tenants to try and fill empty shops
On the previously busy Fitzroy Street strip in St Kilda, which was struggling with vacancies even before the pandemic, a group tried to create a new space for young creatives instead of leaving stores empty.
The non-profit organization Renew Australia has been working in the area for two years, putting young and creative businesses into vacant shops for low or no rent.
They say their model works because it recognizes that many landlords cannot or will not reduce rents because it can affect the value of their properties.
That’s because commercial properties are valued taking into account the rent demanded.
This means that if a person does not rely on a tenant’s rental payments to cover expenses such as mortgage payments or rates, they can choose to leave the space vacant to maintain the value of their property based on the higher rent, rather than reducing the rent, which could shrink its value.
“It’s easier to give away your property for free or with a sub-licence than it is to reduce the rent,” said Renew Australia CEO Angela Simons.
Landlord George Vasiladis has lent space in his vacant shop for 9 months and says he is happy to give young businesses a chance.
“The rent is about $80 a week, for them to leave, which really doesn’t cover the cost,” he said.
“What is the alternative, I can have an empty shop or I can have someone there, and at least I know I’ve made a difference for them.”
He said it didn’t make any money, but allowed potential tenants to see what the room would look like.
He has now found a new commercial tenant for the space.
“It’s not a long-term solution, but it will at least get us through this unknown period.”
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