Smaller Australian malls struggling to fill retail space

SYDNEY Jan 31 (Reuters) - Some smaller shopping malls in Australia are struggling to fill space, with rents also coming under pressure in a difficult retail environment and amid a move to a greater use of online stores, the head of the Australian Retailers Association said.

The trend contrasts with large regional shopping centres, which continue to attract tenants hoping to set up showcase stores, said Russell Zimmerman, executive director for the association.

"Those smaller centres, or sub-regionals, they are the ones that the landlords are struggling to get a fully maintained shopping centre with a 100 percent occupancy," Zimmerman said.

"I know there are a number of retailers with quite a large amount of their portfolio... maybe up to 30 percent..in holdover provisions at the moment," said Zimmerman, referring to a situation where tenants and landlords cannot agree on new rents while retailers continue to occupy on old lease terms.

Despite the tough retail environment in Australia, retail landlords managed to hike rents last year.

In the state of New South Wales, rents for sub-regional malls were up more than 10 percent while in Queensland they rose more than 6 percent, according to Leasing Information Services.

Zimmerman said recent cuts in interest rates should help the Australian retail sector, but typical increases in retail rents over recent years were probably not sustainable.

The retail sector has typically seen rents rise at CPI plus 2 percent.

Australian retail sales were flat in November while sales at department stores, which have been hit by a shift to online spending, were down 4 percent.

"I think landlords have got to become more realistic about what they can charge people because otherwise people will just pack up their bags and leave," Zimmerman said.

He said some retailers were finding that their new online stores were producing as good sales as their bricks and mortar stores.

"Why would retailers be investing in more bricks and mortar stores when the cost of doing business is much lower when you do an online store," he said.

Competition in the Australian retail sector is also heating up as global brands venture into the country.

Also, retailers have started to offer a wider range of products such as supermarket operator Coles, owned by Wesfarmers , introducing a fashion label.

"2012 will see rental reductions in the fashion, electronics, footwear, homewares categories," said Simon Fonteyn, managing director of Leasing Information Services.

Australia's top supermarket chain Woolworths announced on Tuesday that it was looking to sell its struggling Dick Smith electronics chain.

"Ultimately what you will see is fewer actual domestic players in the retail industry because they are cannibalising each others' markets," he added. (Reporting by Eriko Amaha)