MARKET UPDATE – 17 AUGUST 2013

More information that tells us that things are not good out there.

A former leading commercial agent here has swapped sides and is now helping struggling business ‘reset’ their leases so they can keep their doors open.

At first blush it appeared that this may have been an exercise in Landlord baiting or holding Landlords to ransom but in reality it’s a REALITY CHECK.

A local restaurant was paying about $120,000 a year rent and threatening to close it’s doors.  Following an ‘adjustment’ the business owners now pay closer to $71,000 a year, significantly reducing their outgoings and enabling them to stay afloat.

Is this a good or bad thing for the owners of the property?  Only time will tell.  Reduce your rent and keep ‘some’ cash flow or stick to your guns and risk being VACANT for some time.

Of course, one effect not mentioned in the article was the dramatic capital loss that a 50 percent rent reduction brings with it.  Assuming an 8 percent return I would say the leased property that may have been worth up to $1,500,000.00 is now ‘reset’ to something approaching $880,000.00.  That’s a big OUCH.  Further complication – what if the Ban loan is over a million dollars, which it quite possibly could be – the Bank will ask for a top up of funds as the property is now below loan value – significantly below.

The former agent goes on to be quoted as saying the typical ‘reset’ is in the order of 30 to 50 percent which is in line with the fall in retail-outlet leasing values.

Things are not happy in Main Street Australia no matter what the Spin Doctors try and tell you.

Happy Days folks….

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