Urban Taskforce | Policy Agenda

Fact sheet: Limiting retail floor space

26 February 2011

A wide variety of planning controls are used to heavily limit the supply of retail floor space in our communities.


Narrow range of retail and business uses in lower-order centres
Planning instruments frequently only allow only a narrow range of retail and business uses, in so-called lower-order centres.

An example of this problem appears in the Penrith Local Environmental Plan 2010. In this plan, neither retail premises nor shops are generally permitted uses in a village zone. Only neighbourhood shops are permitted, however these are defined to be "retail premises used for the purposes of selling small daily convenience goods such as foodstuffs, personal care products, newspapers and the like to provide for the day-to-day needs of people who live or work in the local area, and may include ancillary services such as a post office, bank or dry cleaning, but does not include restricted premises".

This means a shop in a village zone (other than on those specifically listed sites) must:
¢ sell small daily convenience goods;
¢ ensure the purpose of the goods are to satisfy day-to-day needs; and
¢ be directed to people who live or work locally.


In short, shops of any size are banned in neighbourhood centres if their purpose is to sell large grocery items, clothing, music, home-wares or electrical goods.


A florist who wants to set up shop in a neighbourhood centre will have to argue that flowers are a small daily convenience good and satisfy day-to-day needs of locals. A small shop that sells iPods, mobile phones and personal radios will be banned. As will a baby clothes shop.


Additionally, business premises will also be banned in the village zone. This means that locals will be unable to set up a shopfront to engage in a profession or trade that provides services directly to members of the public. This means local communities will be deprived of internet access facilities, hairdressers, video libraries and dedicated banks, post offices and dry cleaners. Why is it okay to have banking services provided as an ancillary service in a neighbourhood shop, but unlawful to open a bank branch as a standalone service?


Where is the public interest in prohibiting these low impact uses? None of these retail and business types are inconsistent with the character of a centre.


Furthermore, the zoning plans can limit the floor area of all neighbourhood shops, which makes it impossible for even a moderate scale supermarket to be established. This limits the opportunity for competition, ensuring that the community pays more than they should. Limiting the opportunity for a competitive retail environment (by restricting the type of goods sold and/or limiting floor area) robs the community of the opportunity to access a wide variety of competitively priced grocery items in their locality.


What this prohibition really means is that people need to drive further to satisfy their general grocery and shopping needs. The argument that limiting floor area and seeking to control the type of goods sold from retail premises, by way of plan, does not stand up to scrutiny. Local amenity can be properly and appropriately considered at the development application stage. Limiting retail by way of a statutory plan does little more than protect existing retail landlords.


Retail and business premises should be generally permitted (with consent) in business zones, urban centres and important corridors. The merits of individual proposals can be considered at the development assessment phase.


Lack of retail and business uses in employment zones
Many statutory plans do not permit retail premises and/or business premises (other than bulky goods premises, landscape and garden supplies, timber and building supplies) in business development and enterprise corridor zones. For example, Ryde Local Environmental Plan 2010 does not even allow business premises in the business park zone!

Business development zones, business parks and enterprise corridors are intended to be centres of employment. These environments function best when people, working in these areas, have somewhere to go to shop and socialise before work, at lunch time and after work.


Those working in a business development, business park or enterprise corridor zone should be entitled to have lunch in a restaurant, get a haircut or visit a local hotel after work. Surely these uses go hand-in-hand with business activity?


A prohibition on retail premises really means that people need to drive further to satisfy their shopping needs. Planning rules should be encouraging behaviour that reduces vehicle kilometres travelled, not reinforcing old-style separations of land use that force people to drive further.


Retail premises and business premises should not be banned in any statutory plan in zones intended for use for employment purposes.


Large format retail unwelcome in industrial zones
Many recently published statutory plans to not permit retail premises or business premises in light industrial zones. Sometimes food and drink premises, landscape and garden supplies, service stations, timber and building supplies are permitted, and occasionally, bulky good premises are allowed, but almost always retail premises, generally, are prohibited.


This means large format grocery stores, such as Costco, are prohibited in light industrial areas. Large format business supplies retailers, such as Officeworks, or large format hardware suppliers, such as Bunnings, will often have great difficulty in finding sites. Smaller retail supermarkets, such as Aldi, also end up being excluded.


Sydneys 2005 Metropolitan Strategy offered a sensible approach to this issue. The Metropolitan Strategy stated that, for example, retailing for bulky goods might be permitted in industrial areas. There was also a promise of a new approach to reinvigorate employment lands, including flexible zonings for industrial and commercial activities.


However, the statutory plans that have been exhibited since the 2006 Metropolitan Strategy have not implemented this provision. There is potential to include a wider range of retail activities in industrial areas without jeopardising industrial activities.


Promote multiple-use zoning
The planning system is inherently reluctant to zone for a mix of uses. This is now out-of-keeping with international best practice. The planning system favours single use zoning, for example:
¢ business development zones that do not permit retail premises;
¢ light industrial zones that do not permit retail premises or bulky goods premises;
¢ business parks that do not permit retail premises or bulky goods premises;
¢ neighbourhood centres zones without retail premises;
¢ village zones without retail or business premises; and
¢ high density residential zones without retail premises;


The use of multi-use zones should be required - to avoid sterilising land in the event that the market does not seek to develop some or all of the land made available and maximise the opportunities for new retail development.


Zone objectives that stop permissible development
Even if a given development is permissible under the land use table in a statutory plan, it can easily be refused, particularly if it is inconsistent with the zone objectives.


Typically zoning plans require a consent authority to have regard to the objectives for development in a zone. This makes a zone objective an incredibly important factor in the development assessment process.


The key NSW Land and Environment Court case, which deals with the operation and effect of zone objectives clauses, that frustrate new retail and commercial premises development, is Almona Pty Ltd v Newcastle City Council.


In this matter, Justice Pearlman, of the NSW Land and Environment Court, heard a merits appeal from a decision by Newcastle City Council to refuse an application for the "establishment of bulky goods retail, hardware and retail plant nursery" in Kotara, about seven kilometres from the Newcastle central business district.


The site was zoned as light industrial 4(a) under the Newcastle Local Environmental Plan 1987. The site was directly opposite a large shopping complex known as Garden City.


A key issue related to the LEP. One of the applicable zone objectives was to allow commercial, retail or other development only where it is " ... unlikely to prejudice the viability of existing commercial centres ...".


The permissibility of a proposed development depended upon it being consistent with that objective. The council argued that the development could not satisfy the zone objective and therefore should be refused.


Justice Pearlman rejected the developers argument that the carrying out of the development would only be inconsistent with the zone objective if there was a real chance or possibility that the proposed development would bring into question the existence of the Newcastle CBD.


Instead Justice Pearlman ruled that the zone objective permitted "only those developments which do not negatively affect the maintenance and reinforcement of the life or existence of existing commercial centres, of which the Newcastle CBD is, in the terms of the relevant planning instruments, of a higher order or paramount."


" [A] proposed development is permissible if there is no real chance or possibility that it will disadvantage or detrimentally affect the life or existence of existing commercial centres. In this case, the existing commercial centre in question is the Newcastle CBD which itself enjoys some paramountcy over other centres."


The proposed development would have placed other businesses in the region, under competitive pressure, including those in the Newcastle CBD. That means, the project did not comply with the zone objective, and the Court refused the development application. On this occasion it did not matter, but analogous provisions existed in the regional environmental plan and the development control plan and these too, would have stopped the development dead in its tracks.


This case shows how zone objectives, that seek to support the viability of centres, operate to exclude the entry of new businesses that offer any real chance of competition with incumbent centre-located businesses. Its worth noting that the decision of Justice Pearlman made it clear that a centre is defined by reference to business and commercial zones, not the presence of any particular infrastructure. That is, it is the lines on maps that drive the process, rather than the fundamentals of good planning.


Regretfully, there are numerous examples of expressly anti-competitive provisions of this kind, in statutory plans.


Prohibition on medium sized and large, retail and business uses
In NSW the standard zoning template (known as the Standard Instrument) includes a Zone B1 Neighbourhood Centre. The zone objective is " [t]o provide a range of small-scale retail, business and community uses that serve the needs of people who live or work in the surrounding neighbourhood."

A subjective phrase such as small-scale should never have appeared in a statutory plan. The term small-scale is vague and undefined. True, supermarkets or large format stores range from 1,500 square metres (six checkouts) for a typical Aldi or IGA Supa store to 2,500 to 3,500 square metres (12 to 16 checkouts) for a full-line Woolworths, Coles, Franklins or Superbarn. So, in industry terms, a small scale supermarket will have a floor area of 1,500 square metres. However, some government and local council planners have been known to argue that a store of 700 square metres is a larger retail establishment an idea that is rejected by both industry and consumers.


In one well-known case, a supermarket that was well located in a planning sense (in a dense urban environment, within walking distance of two railway stations) was rejected because there was a risk it was large enough to provide a service to people who did not live in the immediate area. The proposed development was permissible and complied with numerical density controls.


The Liverpool Local Environmental Plan 2008 takes the extra step of banning shops with a gross floor area of more than 1,500 square metres. So clearly, a supermarket of 2,000 square metres which would still be small by industry standards will be prohibited in Liverpools neighbourhood centres. However, the fact is, even a supermarket of 1,000 square metres may be deprived of development consent, because of the objective that supermarket retailing must be small. There is nothing in the Liverpool Local Environmental Plan 2008 which says that a supermarket of 1,500 square metres satisfies the smallness criteria set out in the neighbourhood zone objectives.


The reference to small scale in the zone objective should be removed. By depriving local consumers from full-line supermarkets, locals will be forced to drive further to access lower cost groceries and those that are unable to drive will be deprived of the full-range of groceries that are only available at full-sized supermarkets.


In another example, the zone objective for the business development area zone in the Shoalhaven Local Environmental Plan 2005 says that the zone is to provide for "a strategic development area providing both for a variety of uses and for varying combinations of such uses including higher density residential, commercial and tourist combinations but not including ordinary retail uses that would compete with the local retail centre."


Even though the zone clearly contemplates high intensity uses and therefore the infrastructure for the area presumably is capable of supporting such uses competition with the businesses in the local retail centre is not permitted.


The South Sydney Local Environmental Plan 1998 says, of the Moore Park Supa Centre site
"development must not be carried out on land to which this clause applies for the purpose of the retail sale of objects which generally have a high return per unit floor area such as perishable commodities, groceries, clothing, alcohol, fashion accessories or other basic consumer goods (with the exception of bulky goods). ...  The Council must not grant consent to an application for consent to carry out development referred to in this clause unless it is satisfied that the proposed development will not detrimentally affect: ... the range of services offered by existing shops located in any nearby business centre (underlining added) .... ".


The site, which is well located to road transport infrastructure, enjoys considerable patronage from the region, yet is barred from hosting businesses that may compete with nearby business centres. Shoppers visiting the Moore Park Supa Centre cannot buy their full needs there and must instead make secondary trips to other locations.

In Canterbury Local Environmental Plan No 140 the zone objectives for one zone with main road frontages are " to allow low density retail, display, commercial and office development which does not ... significantly compete with or detract from existing retail centres within the Area."

So businesses are not to be permitted if they are in competition with businesses located in retail centres, even when they are low density retail or office uses.

The Wyong Local Environmental Plan 1991 provides a centre support zone whose objective says the area is to "provide opportunities for development having relatively low traffic-generating characteristics but not high turnover shops and offices that might more properly be located in the Business Centre Zone."

So, even if a high turnover shop is able to demonstrate it will have low traffic impacts, it will not satisfy the requirements of this zone objective.

In the Hastings Local Environmental Plan 1987, in relation to the neighbourhood centre zone, there is an objective "to ensure that the neighbourhood centres are viable and not in competition with one another and are compatible with a hierarchy of business centres."

The traditional public policy presumption that competition is healthy has been completely turned on its head in the Hastings area!


Limiting development to preserve a centres hierarchy
Many recent standard-instrument compliant statutory plans attempt to introduce and/or maintain a centres hierarchy. Such provisions typically restrict commerce, limit choice and will often hamper the evolution of centres.


An example is offered by the Greater Taree Local Environmental Plan 2010 which states an objective for a neighbourhood centre as "[t]o strengthen the local community and support the role of the local centres."


A local centre has an objective "[t]o strengthen the local community and support the role of Taree central business district". The commercial core zone has an objective "[t]o reinforce the role of Taree central business district as the major regional centre".

Determining if a development proposal is supporting or reinforcing the role of centres, means asking whether or not businesses, located in a ˜subsidiary centre, will compete with businesses in a larger centre. Furthermore, including objectives such as these will introduce more uncertainly to the development determination process. That is, even applications for permitted land uses will be open to challenge by competitors on the grounds that the development does not support the role of a higher order centre.


In a final example, the Ryde Local Environment Plan 2010 includes an objective for its mixed-use zone "[t]o create vibrant, active and safe communities and economically sound employment centres".

Is it truly necessary or appropriate to instruct a consent authority to consider whether a development contributes to the creation of economically sound employment centres?


The objective may require a consent authority to refuse a development because it will undermine some other employment centre. The objective may also lead to a consent authority refusing a development application because local traders allege that the development will push them out of business and therefore economically weaken the centre. In our market economy, consumers should be in charge. That means that consumers ultimately decide whether or not new retail, entertainment or office development should proceed.

More information

For more information (and source details) please read our fact sheet:

Fact Sheet: Limiting retail floor space

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