Tuesday, 05 May 2009
WHY did the retailers cross the road?
To escape the suffocating cost of Whakatane’s harbour lease ground rents.
Such was the case for Graham Whitaker of Graham’s Hi Fi, and Phil Hope of Image City, two Strand retailers who have relocated their stores from one side of The Strand to the other, and now share a shop in the former Asset Finance offices, next to Cinema Five.
They said their former shops, towards the other end of The Strand, had also experienced slumping pedestrian traffic with the relocation of Farmers and Briscoes to The Hub, and the closure of Retravision.
Mr Whitaker said when Farmers relocated last year “it changed the whole dynamics of The Strand”.
“It was like the lights went off,” Mr Hope said.
They expect their new location to be much more lively, especially with new freehold retail outlets soon to be available nearby in the ground floor of the Quayside apartment building.
But the biggest incentive for making the move was to rid themselves of ground rents - the harbour lease rentals, which they were obliged to pay directly to Whakatane District Council on behalf of their landlords.
Because they were now sharing a shop and staff, all their other costs had been halved, Mr Hope said.
Unlike most shops on the other side of The Strand, the shops on the Cinema Five side are all freehold and the owners are not required to pay ground rent.
The extra cost of ground rents have become increasingly controversial in the past few years, due to steep rises stemming from the property boom and ongoing upward revaluations of the council’s harbour lease properties.
Mr Whitaker and Mr Hope said about 25 to 30 per cent of their shop tenancy costs could be attributed to ground rent.
They said the council was “destroying” The Strand through poor planning and by allowing The Hub to compete for tenants.
“I don’t have a lot of faith in our town planning,” Mr Hope said.
Mr Whitaker said all up he had been paying 30 per cent to 40 per cent more than a tenant in a similar store would pay in Tauranga, and he did not even have a parking space out the back. Now there was room to park a rugby team, he said.
Harcourts real estate commercial consultant Des Hutchinson said ground rents were an issue in the central business district and were making life difficult for retailers.
He said although ground rents had typically trebled in the past few years, the latest valuations were showing a doubling.
Mr Hutchinson said he was aware of one Strand property containing four shops where the ground rent had just been increased from $12,000 to $25,000.
Most harbour leases are for 14-year terms and are revalued as they expire.
Mr Whitaker said ground rent increases had upset many retailers and had prompted him to review other options for his business.
He had thought about buying a shop on Boon Street, but found that the building required expensive work to meet earthquake standards, he said.
He had also looked into running a business from a house on Domain Road but said the council responded to this idea with “a flat no”, because retailing was not allowed in the residential zone.
Mr Hope said the hardest decision he had in making the move was telling his landlord, whom he had a great deal of time for.