Keeping The Shops Open !

 That dreaded word " Recession " now applies to Australia and we are already encountering empty shops in our shopping centres. One in every three Australians rents the place they call home and presently they are protected from eviction if the lockdown is causing a rent shortfall.   That same protection applies to business rents, but the legislation will shortly expire.

Whether this recession deepens until it becomes a " Depression " will largely depend on the owners of business premises facing reality and lowering rents in accordance with the circumstances.  When the economy was robust, rents for shopping space was governed by demand and this delivered a bonanza for shopping space owners.  A surprising number of families earned their living from a range of small businesses tucked away on the fringe of shopping centres and scattered across the suburbs.

Many of these were only marginally profitable and their staffing was composed of casuals instead of permanent employees.  This was the start of the " gig " economy where many casuals had more than one job in which they provided service when needed as a " contractor ".  This led to the fiction that such people were " self employed ".

When we encountered a mini recession in 2008 many owners of business property were more inclined to shutter a shop than trim the rent to suit the circumstances.  This lockdown has depleted the savings of many families and when the recovery starts many will be more concerned with restoring their savings than following the previous lifestyle.  Life will be tough in the business world for the foreseeable future.

The length of this recession will depend primarily on the owners of business premises being realistic.  The business community simply can not support the rents that were charged in the boom years and for many small businesses this is fast becoming the " survival period ".  There is no doubt that the sight of empty shops in a shopping centre encourages shoppers to shut their wallets and reduce their spending habits.

Unfortunately, many owners of business premises locked their superannuation away in rental property in the expectation that rent would deliver their support income.  Just as the people who look to term deposit money held in banks are experiencing  income loss due to the lowering of interest rates, property owners need to be realistic.  The worst outcome is a closed shop and a complete cessation of the rental return.

Perhaps the biggest recovery danger will come from business premises rented out by large corporations who fear shareholders abandoning them if their dividends falter.  Decisions made in the dizzy heights of the boardroom often do not travel well when they are applied to the reality world where profit or loss depends on keeping the doors open.  The owner with a small property portfolio is much more likely to ne realistic when it comes to rents.

The incentive to be a business owner rarely wavers in the minds of many people, and the range of ways in which people earn their living is expansive.  It seems evident that many of the business chains that had premises in numerous shopping centres will not survive this downturn.  Recessions seem to be cyclical in the western world and it is a fact of life that those businesses which survive such downturns usually expand vigorously when the good times return.

If commonsense comes to the fore we will survive this recession !