I have recently been involved in a number of lease negotiations involving shopping centre landlords and I have noticed a significant change in the way that these landlords are now conducting negotiations with their pharmacy tenants.
Since the relocation/new pharmacy rule changes came into effect on 18 October last year, the ability for a pharmacist to obtain an approval number for zero cost (for a correctly sized and tenanted facility) has created the impression with shopping centre landlords that, as a pharmacist will be able to establish their business for less cost, a new pharmacist coming into a shopping centre will be willing to pay more rent to get the opportunity. Landlords are therefore coming to the conclusion that it may be a better option to end an existing lease and deal with potential new tenants. These new rulings have indeed brought out the worst in many landlords and we are only six months into these changes.
One of the situations that I have been dealing with involves a pharmacist’s lease coming to an end, with the time to renegotiate having commenced. Unfortunately there has been some knowledge of this situation leak back to the pharmacy community and the landlord has been approached by several other pharmacists who are willing to offer much more, in terms of rent, than the existing tenant has been paying. This in turn has given rise to the landlord being adamant about the amount he NOW expects for the rent, which would make the business unviable.
Several issues arise from this; the first being that there are pharmacists who are prepared to speak directly to another pharmacist’s landlord about entering into a lease arrangement, which in itself is incredibly disappointing. I know we are all big boys and we like to play hard but if they stopped for one second and realised that if the landlord is prepared to do this once then maybe he just might do it again when it comes time to renegotiate their lease.
The other issue that ensues from this is that the value of shopping centre pharmacies will be further eroded by the increased lack of stability. It is already a bank’s position that long tenure is required before financing a pharmacy (currently a bank will ask for 10 years on a lease but will normally settle for 7 years as a rough guide), however I feel that it may come to pass that banks will not provide finance for shopping centre pharmacies unless there is an absolute minimum of 10 years on the lease.
So where is the protection for the pharmacist when landlords have the upper hand every time there is a lease negotiation? It has already become evident that the new rules did not give enough contemplation to the problems that a zero cost number causes in a shopping centre environment. The thought of a free number generates plenty of greed in landlords and pharmacists alike, who can only see the free number and not the ongoing accumulative effect of the high rents that are being paid. I am of the opinion that if a number leaves a shopping centre then there should be a period of at least two years until another number can be activated within that shopping centre. This would provide the incumbent pharmacist with a fairer playing field when negotiating with the landlord.
To minimise the chances of an untoward situation arising with a shopping centre pharmacy lease, I strongly advise that pharmacists need to maintain a healthy relationship with their landlords (just keep biting that tongue!), do not divulge your lease details to others, begin lease negotiations at the very first opportunity, always pay your rent on time and do not let others know your business details unless it is completely necessary.
I am always happy to discuss the current market and what is happening, please feel free to drop me a line either via email or on mobile.
Regards
Peter Marshall
Managing Director
Pharmacy Solutions Australia
0417 721 203
peterm@pharmacysolutions.com.au