Retail property sector could grow, despite ‘insipid’ November ABS sales result

Retail sales rose only 0.1% in November, below expectations, but economists and retail property analysts are reasonably confident of a good year for retailers and retail property landlords in 2013.

Shopping centre owners and retail landlords with a high proportion of service-orientated tenants, such as cafes, restaurants and travel, and entertainment operators should be well placed, and there is also expected to be a continued expansion of overseas retailers into Australia.

In addition, the ABS figures suggest the larger chain stores and supermarkets are continuing to perform well, (though department stores are still struggling).

Michael Bate, Colliers International head of retail, is optimistic about 2013, after the sector underwent what he calls “significant structural change” in 2012 following two decades of outperforming the commercial property sector as a whole.

“While retailers will continue to review their store portfolios with a view to improving performance, most domestic retailers have now completed their network rationalisations and we anticipate some will look at expansion at 2013,” he says.

He says the retail sector will be influenced by the impact of interest rate cuts on household disposable income, the level and intensity of price discounting by retailers and the management of operating costs by both property owners and retailers.

While figures from the all-important Christmas retail period are not yet available, Bate says Colliers expects a modest improvement in retail spending in 2013, with “household incomes to be supported by rate cuts, cushioning the impact of slower wages growth and higher taxes”.

“Retail spending remains below long-term averages in Australia, but the volatility experienced over the past six months has now moderated,” he says.

Nora Farren, Colliers International research director and author of the latest Colliers International retail research and forecast report, says that from an investment perspective, retail assets remain appealing.

“High quality, dominant shopping centres are still performing well despite the slowdown in retail turnover growth.

“They continue to be viewed as a defensive investment class. Retail has also been the beneficiary of capital inflows from overseas investors. The high relative yield spread (due to low bond yields) combined with the global appetite for low-risk investments are supporting this demand. Foreign investors have been active in the retail property sector, with several major sales involving offshore institutional investors,” she says.

She says “experience with convenience” will keep consumers coming back to shopping centres.

“Consumers are spending more on experiences such as travel and at cafes and restaurants. As a result, we are seeing increased focus on entertainment, lifestyle and food precincts in shopping centres, as perceptions change as to what attracts consumers to a centre, and keeps them there for longer,” says Farren.

She also expects the influx of overseas retailers to Australia continue “apace next year”.

“This charge is being led by US brands, but retailers from Europe and increasingly Asia are looking to expand into Australia.

“While the entrance of offshore retailers has some domestic retailers shaking in their boots, the arrival and positive view of our market potential should be a comfort to our industry. Positives can be taken from the renewed interest in retail that these new brands generate.”

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