Strategic outlook needed for retail investors
Retail leasing negotiations are set to favour Darwin’s business operators until 2021 as population growth and market absorption remains flat, according to LJ Hooker Commercial.
The network’s recently released Retail Market Monitor anticipated retail turnover to rise to 2% in the Territory over the next year but its improvement comes from a negligible base and will remain below the forecast 3% national average over the coming year.
LJ Hooker Commercial Darwin Principal David Loy
/ General Manager Brendan Dunn
said retail landlords had to be strategic over the coming three years.
“The simple fact is that 80,000sqm of new retail has come on-line in the last three years and the city’s population is probably 20,000 people short of what’s needed to sustain that level of investment,” said Mr Loy
/ Mr Dunn
. “It’s going to take the next three years, at least, for population growth and economic conditions to shift.”
The Monitor showed NT’s retail turnover growth last matched the national average in 2013-14.
“The landscape has changed since then,” said Mr Loy
/ Mr Dunn
. “Tenants whom are coming off five-year leases are coming to the negotiation table with much greater choice and opportunities in the market.
“Landlords need to take a strategic view to lease renewals or else they’ll face the challenge of finding a tenant in an over-supplied market. Landlords who are seeking tenants right now are having to consider significant incentives to attract tenants.”
The recently released Retail Market Monitor examined the challenging nature of regional and strip retail in the face of rising online spending and wider economic influences. The Monitor forecast retail turnover to trend higher over the coming three years but remain subdued in historical terms as jobs and wage growth remained stagnant.
Although the nationwide value of retail transactions reached $10 billion over FY17, the sum was influenced by a handful of large transactions, said LJ Hooker Commercial Managing Director Mathew Tiller.
Amongst the backdrop of structural change, Mr Tiller urged landlords and tenants to work collaboratively to address the shared challenge of e-retail.
“Retail landlords who want long-term security need to be thinking about experiential tenants who are going to best succeed with experiential services and that means being accommodating in fit-outs and repurposing,” said Mr Tiller.
“Discount department stores and the like are already reviewing their strategies, shifting to smaller retail footprints and embracing e-retail.
“Experiential tenants and service-based operators such as medical, gymnasiums, co-working offices are going to come to the fore in the new retail environment.”
The Monitor also found that yields were at risk of softening as bond rates rose.
“Landlords seeking low yields will be looking to divest over the coming 12 to 24 months. We could see listings loosen up over the period.”
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