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Landlords ‘locking up business profitability’

Adam Zuchetti
Adam Zuchetti
19 August 2017 2 minute readShare
Lock, city

The commercial property rental market is failing SMEs and causing the very cost pressures the government says it is trying to alleviate, a business owner has claimed.

Commenting on a story about stalling wages in around half of SMEs, one My Business reader suggests that price gouging by landlords is severely reducing the profitability of smaller businesses, and hence their ability to pass on higher wages to their employees.

“One particular aspect is the practice in commercial rent in Australia where most landlords will increase rent by 5 per cent each year when inflation is barely 2 per cent and interest rates flat,” the reader says.

“SMEs … need regulations with commercial rent to stop landlords locking up business profitability.”

Analysis by Colliers International on Australia’s five largest cities suggest that tight supply and falling yields in many markets are behind the price increases.

It found that investor yields on retail properties are flat or falling in the first half this financial year compared to last. Yet despite falling or stagnant returns, rental increases are generally in line with inflation or lower.

In the office market, rents are increasing almost across the board, with those in Sydney outpacing the rest of the country – led by 14 per cent increases in net effective rents per square metre across all classes.

Colliers noted that net supply is forecast to plummet in the year to July 2018 in Sydney and had fallen in all major cities other than Perth and Canberra, meaning that further rental increases are likely.

Meanwhile, industrial rents in our five biggest cities showed much greater variation. Premium grade properties in the first half of 2017 rose 10 per cent, while in Melbourne’s secondary grade market, they soared by 23 per cent.

Other industrial types in Sydney, Melbourne and Brisbane all posted increases of between 2 per cent and 8 per cent, while rent remained relatively flat in Adelaide and fell up to 14 per cent in Perth.

Despite the reader’s concerns about rents, however, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) told My Business that it has not received many complaints about the issue.

Instead, it has been focused on addressing soaring energy costs, where power bills are hitting manufacturing businesses particularly hard.

The ASBFEO cited the examples of Price Plastics in Dandenong, which is facing electricity cost increases of more than 75 per cent this year, and Braeside-based PMG Engineering, where a 20 per cent spike this year pales in comparison to the expected 180 per cent surge next financial year – equivalent to more than $110,000 a year.

Regardless of the type of property being leased, SMEs are being urged to carefully review the details of any lease agreements before signing them.

The NSW Small Business Commissioner notes that some leases, particularly retail leases, contain a clause about rent adjustments being linked to current market rents – meaning SMEs have more involvement in the process of adjusting rental rates.



Landlords ‘locking up business profitability’
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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