Martino Property Group

In the space of 18 months to June 30, 763 stores have closed as major chains such as Topshop and GAP have shutdown and, for those who remain, constant discounting is also weighing on returns, a report from retail leasing agents at JLL reveals.

The blowtorch on retailers has lifted vacancy levels in shopping centres to their highest level since the global financial crisis and will likely keep a lid on rents for the foreseeable future.

The report found the average vacancy rate for shopping centres had lifted up 0.7 percentage points in the first half of 2017 to 3.3% – the highest rate since 2009 in the depths of global financial crisis.

The CBD markets in Sydney and Melbourne fared best with vacancy hovering at about 2-3% on average partly due to limited supply as department stores, shopping centres and the flagship stores of international retailers soaked up space.

That saw the average national CBD vacancy rate decrease marginally, from 6.8% to 6.3%, but remains significantly higher than other categories, largely driven by the greater number of empty shops in Adelaide and Perth.

Andrew Quillfeldt, JLL’s director of retail research, said some of the economic factors weighing on retail spending growth would fade and would help stabilise falling rents.

“The housing market is less of a driver than it was in previous years, wages growth remains subdued and new market entrants are driving competition-led discounting among retailers has kept inflation low or negative”

Mr Quillfeldt said while Amazon would have an impact on retailers when it launched, the biggest impact, at present, was from economic issues of slow wage growth and flat employment.

“These issues are weighing in retail spending,” he said.

“We expect rental growth to remain muted in the short-term but the fundamental drivers of strong population growth for a mature economy and employment growth will be supportive over the medium-term.”

Marie Lee, the senior project manager at Bis Oxford Economics, is less optimistic, saying the tough conditions are not likely to improve soon.

Ms Lee said a soft economy, weak household income growth and subdued consumer spending will continue for some years.

“Amazon’s expansion in Australia is yet one more challenge to Australian retailers and shopping centres that have already been facing headwinds on several fronts in recent years,” Ms Lee said.

“While the spectre of large-scale shop closures, declining retail employment and abandoned shopping centres that we see in the US is unlikely to be repeated to the same extent in Australia, the risks associated with retail property investment are arguably higher than at any time in the past.

“Returns are expected to vary significantly from centre to centre and some [retailers] will fail.”

Redevelopment and technology

To stall the paralysis, shopping centre landlords are seeking to internet-proof the malls with more service tenants, such as cafes, beauty salon and banks, plus technology to make it easier for consumers.

Tony Doherty, JLL’s Australian head of retail, property and asset management, said owners of retail assets are focused on the long-term themes impacting shopping centre performance, especially technology.

“Landlords have to be responsive to the changing environment and provide the best possible places for people to shop, socialise and dine,” Mr Doherty said

“A redevelopment upswing is under way as owners reconfigure and refurbish shopping centres to install technological infrastructure for customer analytics, to provide upgraded and expanded dining precincts and to introduce new brands and services to their centres.”

Nonetheless, if the product isn’t immediately available, cannot be ordered online, or is not “en pointe”, then the retailers may as well shut for business, no matter how good the centre has been redeveloped.

 

Source: www.smh.com.au

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