The word on everyone's lips: Amazon
The retail behemoth’s expansion in the Australian market (it has already had a
small presence for over four years through e-readers, e-books and audio books) was announced in April 2017. It has since secured at least one distribution centre. However, the details of what, and when, services will be launched remains subject to speculation.
As such, any estimate of Amazon’s impact on the retail landscape is pure conjecture. However, one thing is for certain—Amazon’s expansion comes at a difficult time for Australian retailers and their landlords. Consumer spending is constrained, meaning turnover in shopping centres and centre incomes are growing only slowly. There are enough challenges to deal with without the extra burden of Amazon.
Forecast: turnover growth to improve
The pace of retail turnover growth has slowed considerably over the last three years, from 5.7% in late 2014 to 3.1% as at August 2017. Forecasts are a little more positive with turnover growth to be supported by low interest rates, a fairly stable unemployment rate and more robust growth in the food sector. Additionally, any further depreciation in the AU$ will generate positive net tourist spending and net online shopping effects.
Shopping centre turnover growth does not translate directly to income growth; there are other factors at play. The key challenges are: continued negative leasing spreads in some centres; the poor performance of anchor tenants and certain other retailers; pressure on retailer profit margins (and ability to pay rental increases); the risk of empty spaces in shopping centres; and changing consumer spending patterns that necessitate capex and leasing incentives to bring in new retailer types. These challenges are not new, but they seem to be making things incrementally tougher each year.
Investor interest remains solid
The value of retail transactions was lower in FY17 than in the previous year, but nonetheless remains at healthy levels, reaching over $6.6 billion. Strong investor interest is reportedly being constrained by a lack of stock on the market, particularly of regional and subregional centres. Consequently, neighbourhood centres made up the greatest share of transactions, accounting for over $2 billion, or 31% of the total. However, the first regional centre transactions in three years have been recorded: shares in Westfield Woden and Highpoint Shopping Centre (post-June 30). Retail yields have firmed aggressively over the last few years. Average regional centre yields sit at just below 5.5% (June 2017), with sub-regional centre yields averaging 6.2% and neighbourhood centres 6.5%. For all three centre types, average yields are firmer than at the market peak in December 2007. Yields are expected to firm further in the near term, reflecting a continued strong flow of investor funds as low bond rates encourage the search for yield.
Head Of Commercial
Head Of Research
M 0434 562 073