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Australian retailers among world’s highest rent-payers

Sydney, Melbourne and Brisbane are in the top 10 most expensive rental markets in the world, according to the latest CBRE report on global retail rents.

The commercial real estate specialist’s report shows Australia to be one of the most expensive countries to rent business premises in the world, with Sydney ranked third most expensive, averaging $1,224 per square foot to rent behind New York and Hong Kong. Melbourne ranked eighth at $776 and Brisbane ninth at $618.

Chairman of Refunds Direct and former managing director of global franchise consultancy DC strategy Robert Graham said: “While the top end rents may be a sign of a relatively robust Australian economy, it has massive consequences for Australian small business owners and aspiring entrepreneurs.”

The two major operating costs for SMBs are labour and rent, and with Australia’s compulsory superannuation creeping toward 12 percent, labour costs are expected to stay high.

“Smart business owners are ensuring their rostering  and productivity from labour is always improving but there is no getting away from the high overall cost of employing and managing staff,” said Graham.

One trend to combat high cost rents is the growth of mobile franchises. Graham said the issue of ‘do we really need a shopfront?’ is increasingly common in his consultancies. The growth of iPad and smartphone technologies mean many employees have a portable office and consumers are increasingly likely to shop online.

Many retailers are also shifting their shopfronts to experience based environments to entice more people through their stores as the rent rises.

Businesses have to think about what trends are going to arise over the next 10-15 years, Graham said. “It’s obvious to me that technology will continue to make an office environment more redundant and even more importantly, customers will become increasingly comfortably with dealing and purchasing online or by phone.”

Graham encouraged existing business owners stuck with long-term leases to consider how they can extend their distribution reach through new channels like online or alliance arrangements.

“I would encourage new owners or potential franchisees to weigh up carefully the revenue/cost equation over coming years to make sure they have a flexible and low-cost business that can ride economic cycles and optimise profitability without being at the mercy of landlords.”

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Maree Sorbello

Maree Sorbello

Maree is a first year student at Sydney's University of Technology, and is one of Dynamic Business' star interns.

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