Retail March 2020 - Master Advocates
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Retail March 2020
National Property Clock: Retail
Month in Review
March 2020
Entries coloured purple indicate positional change from last month.
Balina/Byron Bay Melbourne
Central Coast South East NSW
Gold Coast
PEAK OF
MARKET
Brisbane Mid North Coast
Sunshine Coast Approaching Starting to Illawarra Sydney
Peak of Market Decline Ipswich
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Ballarat Coffs Harbour Newcastle
Bendigo RISING DECLINING Echuca Toowoomba
Burnie-Devonport MARKET MARKET Gippsland
Launceston
Adelaide Hills Gladstone
Barossa Valley Mackay Start of Approaching Hobart
Recovery Bottom of Market Lismore
Canberra Mildura
South West WA
Geelong Rockhampton
BOTTOM OF
MARKET
Adelaide Emerald
Alice Springs Hervey Bay
Bundaberg Perth
Liability limited by a scheme approved under Professional Standards Legislation. Cairns Townsville
This report is not intended to be comprehensive or render advice and neither Darwin
Herron Todd White nor any persons involved in the preparation of this report
accept any form of liability for its contents.
5
New South Wales
Month in Review
March 2020
Overview In other areas, we have seen traditional retail properties adapting,
As has been discussed by many, the retail sector
has become one of this nation’s most challenging with a focus on professional and health services, particularly at
industries – and the flow on effects to its property the lower end of the market.
operators have been significant.
In the wake of major business closures and shifts in incentives as landlords try to attract tenants. We started to see an increase in demand from high
tenant demographic last year, what can we expect expect these conditions and the general uncertainty end retail tenants. These high-end tenants were
for the rest of 2020? in the market to result in a lack of demand. looking to secure prime locations in order to meet
the growing demand for luxury goods, mainly from
This month, our commercial teams provide their In some instances, the market has been adapting
overseas tourists. In light of recent global events
location-by-location outlook on the retail property to the changes that are coming. In some areas, we
and media speculation over tourism this year, it will
sector for the remainder of this year. have seen a shift in traditional uses. As an example,
be interesting to see how and what impact this has
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we have seen a focus on food and beverage in
on the higher end retail market.
Sydney some areas and centres. In some traditional strip
There is no shortage of negative media coverage retail precincts, we have begun to see a shift in Within the major shopping centres, demand and
for the retail sector and we are certainly of the expectations from landlords and a change in use. the wants of consumers has driven demand from
opinion that there are tough conditions to come for In these areas, the retail strips tend to outperform retailers. Consumers are really looking to shopping
the Sydney retail market. others more reluctant to change and in some cases, centres for an experience. Food and beverage is
create a revival of sorts. dominating that demand. Centres that cater to this
The retail market generally performed well over
by offering a unique venue and plenty of variety are
the past few years as a result of demand from In other areas, we have seen traditional retail
doing far better than those with a traditional layout
investors and the low cost of funding. That wave properties adapting, with a focus on professional
and tenancy mix. We therefore expect that centres
seems to now have passed and we anticipate that and health services, particularly at the lower end
that adapt to the changing nature of the industry
while there are still investors in the commercial of the market. The growing demand in this space
will continue to perform well.
market, they will be focused on other asset classes has meant that landlords willing to adapt and
this year. There is concern that large chains and alter their expectations have been able to attract Looking ahead, our outlook for retail in Sydney
well-established businesses that have traditionally good tenants. remains cautious. We expect a general slowing of
offered stable income are no longer considered to the market and lack of demand from investors as
Mixed use zoned properties with potential for
guarantee longevity and security for investors. we think most will wait to see the outcome of recent
redevelopment may hold up, especially if the
media coverage, global events and the collapse of
Some of the things we anticipate may happen recent increase in growth within the residential
many major retail chains.
in 2020 in the retail sector include a softening market continues and developers begin to return
of capital values, a reduction in returns due to a to the market.
Wollongong
softening of rental growth, moderate increases in
Over the past year or so and as we got closer to We expect to see ongoing stagnant conditions in the
supply, an increase in vacancy and an increase in
the completion of the light rail within the CBD, we retail sector in 2020 as the industry continues to be
6impacted by online retailing and changing consumer Month in Review
behaviour. However, this is quite a broad statement. Despite the coastal market being reflective of a seller’s March 2020
While we recognise the challenges being faced in market over the previous two to three years, our inland
the broader industry, the weakness is not specific localities have been less buoyant.
to our region and there is still good investor
demand for quality retail assets underpinned by Despite the coastal market being reflective of a accommodation facilities experiencing higher
corporate leases as evidenced by the recent sale of seller’s market over the previous two to three occupancy rates.
Bing Lee Warilla for $3.2 million reflecting a passing years, our inland localities have been less buoyant.
The current significant concerns surrounding
and analysed market yield of 6.86% and a rate of The buyer’s appetite for purchasing retail real
coronavirus are likely to impact the tourist market.
$2013 per square metre (blended and inclusive of a estate remains cautious with the market still
This is likely to initially adversely impact markets
warehouse storage component). showing a level of maturity with limited demand for
dominated by the Chinese outbound market. The
poorer quality properties in secondary locations
Overall bulky goods retail is performing well local market is not reliant on this component and
while investors show very strong preference
with vacancy rates low and rents holding up as such is less likely to have any obvious downturn
for fully leased assets with good lease profiles,
well. However, strip retail continues to be under and the locality could experience a rise in the
particularly for national tenants or higher profile
pressure with no sign of improvement in vacancy domestic tourist market as Australians opt against
stable local tenants.
rates, letting up periods, rents, incentives or long flights or cruises etc.
tenant demand. The exception to this rule is vacant lower priced
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We are expecting a steady as she goes with a stable
properties which appeal to owner-occupiers which
retail rental market and value levels holding as
Lismore demonstrate lower yield more in line with national
supply and demand are likely balanced to a slight
The local retail market has been heavily impacted tenanted assets.
undersupply of quality investment product.
not only by the ongoing movement to online
We envisage this trend to continue while interest
shopping but by the significant flood event in April
rates remain low. Coffs Harbour
2017 which saw a number of businesses shut down.
The retail sector continues to experience sensitivity
The take up of vacant space has been very slow. Ultimately the strength in the market can be
in rental levels, high vacancy rates and extended
relatively fragile and any increase in interest rates,
The higher vacancy rates are likely to put lease-up periods.
decline in economic activity or significant decrease
downward pressure on rents over the coming 12
in market sentiment could see a softening in the Despite various levels of the economy performing
months. Ultimately this could impact value levels.
market which could result in downward pressure well, the demand for retail shopfronts is slow with a
The local CBD retail trade is increasingly being on values. variance between the owner’s asking rents and the
dominated by food outlets, community groups and rental level required to have a limited number of
a small but growing number of office type uses Byron Bay & Ballina potential tenants commit to lease.
within traditional retail space. The coastal retail markets have been more
The vacancy level within the CBD main strip
resilient with lower vacancy rates and stronger
While the 2017 flood event remains a detracting centre over the past 15 months has remained
demand from tenants, particularly in higher profile
aspect for ground floor space within the CBD, the constant at around 12 shops or 15 percent
locations, which has resulted in maintenance to
flood diversion works at south Lismore (currently vacancy in the main strip retail area. There is a
upward pressure on rents.
being constructed) could further reduce the risk of low demand for secondary fringe locations unless
flood within the CBD (currently protected by a flood Ultimately this is the result of a more dynamic the rental level is discounted to be cost-effective
levee wall up to a 1:10 year event). and healthier tourist industry which has seen for local business.
7Beachside retail in Woolgoolga and Sawtell are niche markets Month in Review
March 2020
which appear to be performing at a stronger level albeit at far
lower and affordable rental levels.
It is difficult to envisage any stimulus other than Beachside retail in Woolgoolga and Sawtell are
reduced rental levels or a complete reconfiguration niche markets which appear to be performing at
of the property holdings (less than realistic) within a stronger level albeit at far lower and affordable
the Coffs Harbour CBD. rental levels. The Woolgoolga market in particular
is expanding with new developments planned or
The major shopping centres appear to be any
underway. Sawtell has long been established as a
prospective tenant’s preferred option as they wish to
popular small retail centre with a high occupancy
operate within central centres with air conditioning,
rate but has traditionally exhibited a comparatively
higher pedestrian flow and security in place, albeit
lower level of rent. More recently, rents within
that these centres are charging substantially higher
the centre are edging upwards with most shop
rental rates and impose stringent conditions on
businesses focused on food and entertainment.
opening hours which increases the cost to small
business, particularly with Sunday trade.
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The demand to purchase retail property varies
depending on the market classification with
investors and owner-occupiers active but usually
with different criteria regarding the purchase of
property.
Investors are focused on the strength of the tenant,
terms and conditions of the lease and owner-
occupiers are more interested in size, design,
location and suitability for their business.
Whilst the strongest part of the retail market is
the cafe, coffee and food sector, these businesses
require a huge commitment, long hours and
frequently battle competition, high wastage
and wage costs. This often determines a limited
capacity to pay higher rents or to sustain significant
increases in rents. Investors remain attracted to
retail property in the face of a low-interest rate
climate as they seek superior rates of investment
than those on offer from the banking sector and
the share market.
8Victoria
Month in Review
March 2020
Melbourne We are beginning to see a number of retailers rationalising their
The Melbourne retail investment sales market
generally remained steady towards the end of 2019 footprints by way of reducing store sizes and in some instances,
with firm yields reflecting the limited availability closing underperforming or unprofitable stores.
of quality stock and solid purchaser demand. We
have seen particularly strong results for well-
According to the Australian Bureau of Statistics, appear to now be more open to negotiating lower
located properties with long term leases to major
retail trade in Victoria rose 0.3 percent from face rents in lieu of rent-free periods or fit out
national retailers and for those with longer term
November to December 2019 with an annual contributions which provides more transparency
development potential.
increase of 2.8 percent from September 2018 to for the tenant and landlord.
We have continued to see varied results throughout December 2019. Nonetheless, many retailers are
During 2020, the Melbourne retail investment
the wider market. There have been a number of expecting difficult operating conditions throughout
market is expected to see varied results across
examples of heavily declining rents which, when the first half of 2020.
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different market segments. We are of the opinion
coupled with already sharp yields, is resulting in
We are beginning to see a number of retailers that yields will remain stable for retail properties
downward pressure on capital values in some areas.
rationalising their footprints by way of reducing in strong retail locations such as the major
Our research indicates that financial institutions store sizes and in some instances, closing strips in the Melbourne CBD and inner suburbs
are placing an increased focus on factors such as underperforming or unprofitable stores. such as Collingwood and Fitzroy in addition to
security of income, lease covenant and length of retail assets such as supermarkets which have
The downward pressure on rents in suburban
remaining lease term for assessing serviceability of long term leases to major national retailers and
retail strips experienced throughout the majority
debt. As a result of the reduction in the borrowing for properties with longer term potential for
of 2019 is expected to continue throughout 2020
power of purchasers, we are beginning to see signs redevelopment. It is likely that yields may soften
with tenants continuing to seek short initial terms,
of a slowdown in the constant price rises over the for retail properties in secondary locations,
sometimes as short as one year, with a number
past five-year period. When on the market for sale, particularly within areas with low tenant demand
of further option terms which allows for flexibility
some retail properties are experiencing extended and high vacancy rates.
in the short term but some security and certainty
selling periods, particularly vacant retail assets and
to retain the premises should the location prove As in previous years, the Melbourne CBD and inner
those in secondary locations.
suitable for the business. From a landlord’s suburban retail rental markets will continue to be
As the wider retail market continues to evolve and perspective, these flexible leasing terms are heavily impacted by population growth, changes
adapt to the challenges, we are witnessing retailers attracting tenants, covering operating costs and in consumer behaviour and varied consumer
looking to differentiate and reinvent themselves providing for reviews to market should the leasing confidence. Some areas, such as Chapel Street,
in the market. Online retailing continues to place market improve. South Yarra and Bridge Road, Richmond will likely
downward pressure on bricks and mortar retailing continue to experience high levels of vacancy as
There is also a continuing trend of tenants
however will likely continue to play an important a result of the ongoing shift away from traditional
being more aware of the impact that significant
role in a brand presence. retailing towards service and food based uses.
incentives have on net effective rents. Tenants
9Outer suburban retail markets, in particular those Month in Review
outside established retail locations, will likely be March 2020
impacted by larger operators who are opting for
a more centralised model of retailing appealing
to consumers demanding a more convenient and
interactive shopping experience. Smaller retailers
unable to sustain the higher rental rates typically
demanded within modern centres will struggle to
adjust to the larger number of vacating tenants
along older retail strips unable to provide the
convenient experience modern consumers demand.
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10Queensland
Month in Review
March 2020
Brisbane On the investment front, buyers are increasingly aware of the
Retail continues to be the most challenging sector
of the property market. An emerging reality is that
retail headwinds and have become increasingly cautious.
there is simply too much retail available across
of a number of café precincts in the inner suburbs by Coles and Woolworths are highly sought after
Brisbane to service relatively flat levels of tenant
of Brisbane. Previously strong locations such with investment yields holding in the 5.75% to
demand. The oversupply is exacerbated by the
as Bulimba, Nundah, Portside, Given Terrace, 6.75% range. These centres are considered to be
ongoing growth and sophistication of the online
Racecourse Road, Park Road, Stones Corner, reasonably recession and future- proof.
environment and the significant cost advantages
Coorparoo and Windsor in particular are seeing
that online retailers enjoy compared to bricks and For sub-regional shopping centres, there are
higher levels of vacancy and increasing levels
mortar retailers. more sellers than
of tenant turnover. For some of these precincts,
buyers at the present
As a result, there is an increasing level of vacancy recovery is likely to take many years.
time and markets are
in areas previously considered as prime and a
COMMERCIAL
On the investment front, buyers are increasingly continuing to soften.
much greater level of focus on convenience,
aware of the retail headwinds and have become The exposure of these
parking and exposure. This is causing a greater
increasingly cautious. They are more closely centres to fashion and
level of differentiation between prime and second
examining lease covenants, lettability and discretionary retailers
tier properties which is evidenced in both rents Indicative yields
sustainability of rent levels before committing is a significant drag on
and yields.
to purchase. Coupled with this, the inability rents and saleability, 6% to 7%
Issues such as decreasing availability of parking, to replace strong retail assets is leading to a however these market
Convenience retail
the growth of delivery services and the higher costs diminishing supply of good quality stock for conditions open up
of living generally have eaten into the profitability sale and lower levels of sales accordingly. As a opportunities and there 5.75% to 6.75%
result of this caution there is a clear divergence are private investors Neighbourhood
in yields emerging between good quality, well scouring the market centres
leased property and those with greater cash flow for opportunities to
uncertainty. For prime sub $5 million investment purchase and value add. >8%
properties, yields have continued to tighten There is however still Second-tier,
whilst yields for second tier properties are the potential for ongoing sub-regional
stagnant at best. diminution in rent levels
for existing tenancies,
For strong convenience retail properties, yields
and buyers are very cautious. Yields for these
are generally in the 6% to 7% range but may
centres are showing a wide range and now touching
achieve under 6% for strong well leased inner-city
over 8% for second tier properties.
properties.
In the CBD retail markets, conditions remain soft
Good quality neighbourhood centres anchored
Quiet Café Precincts Source: Kgbo, Wikimedia Commons albeit that there is long term optimism in the
11market due to the major infrastructure projects The following case study is indicative of the Month in Review
underway. strong results being achieved for quality retail March 2020
investments, with recognised tenants and long
Rents across all retail classes are stagnant at best
WALEs. The Pimpama Service Centre sold in
and incentives are increasing, particularly where
September 2019 for $16.35 million, reflecting an
there is significant vacancy.
analysed yield of 5.81%. It was purchased by a
The headwinds in retail are likely to be long term, high net worth private investor after an extensive
with the likelihood of further pain. marketing campaign. This is a modern service
station and fast food complex completed in
Gold Coast 2018, located within a developing retail precinct
We are barely into a new decade and already QLD GC Pimpama Service Centre Source: HTW at Pimpama on the northern Gold Coast. It is
Australia has been battling the extremes of anchored by a United Petroleum service station
drought, fire and floods, not to mention the threat carefully weigh up the pros and cons of having a and there are five fast food tenancies, including
of a major virus outbreak. tenant in place at an affordable (although possibly Carl’s Jr, Red Rooster, Pizza Hut, Zambrero and
lower) rental, versus achieving a higher rental with a Chinese restaurant. The WALE equates to 11.27
Apart from these extreme events, other challenges
greater risk of tenant failure. years (by income).
faced by Australia include the struggling retail
sector, which flows on to the retail property market. The global retail landscape is changing and local We consider that strong demand from investors
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The Gold Coast retail market is no different. retailers and property owners must be aware and for quality retail investments on the Gold Coast will
adapt as best they can. For retail to succeed in the continue throughout 2020, with the low interest
Stagnant wage growth and changing spending
future, some level of reinvention will be required. rates and desirable location attributes maintaining
habits have been major contributors to lacklustre
Locally, broad examples include the growth in yields at firm levels.
retail performance, while the increase in online
quality cafes and restaurants in the suburbs on the
shopping has had an impact on traditional bricks In terms of overall retail property values, we
southern Gold Coast, the creation of a China Town
and mortar retailing. Further, many established consider that the weaker rental market will be
within Southport and on a more general scale, the
retail centres within the Gold Coast’s suburban offset to some degree by the firm yields being
increased number of convenient, drive-through
areas have been impacted to some degree by the achieved. However, for long term success, it will be
cafes and food premises. Perhaps the number of
increase in online retailing, as well as restaurants imperative for all stakeholders to carefully monitor
retail services could increase also, as these are
and cafes. changing retail and cultural trends, both locally and
harder to replicate online.
abroad and to adapt as best they can.
In general, throughout 2019 there was increased
The one saving grace is the current historically
stress on retail tenants on the Gold Coast,
low interest rate environment, which Sunshine Coast
resulting in downward pressure on rents and
commentators predict will stay lower for longer. The Sunshine Coast has a number of different
upward pressure on incentives. A similar situation
Therefore, while rental levels have been impacted, retail markets. These range from local townships,
is expected throughout 2020. Landlords should
yield levels have firmed and investor appetite older retail strips, to some of the most sought-after
consider rental affordability rather than purely
for a return on investment is strong, helping to retail real estate in Australia at Hastings Street,
the rate per square metre achievable and should
protect property values. Noosa Heads.
As a result, it is very difficult to predict a general
For retail to succeed in the future, some level of reinvention retail market sentiment across the region.
will be required. Towns such as Beerwah, Cooroy, Tewantin and
12One of the continued themes we are seeing in the market to the service industry. Month in Review
Retail property owners March 2020
is the interest in well leased assets. can adapt to this swing
by shifting their target
Maleny that service local areas have seen limited leases in place indicating yields of sub 5% and
market to the service
rental growth, though typically have also seen values of over $50,000 per square metre.
limited vacancy over the past 24 months. Sales
One of the continued themes we are seeing in
industry, targeting
users including
19%
that have occurred indicate a general confidence Toowoomba CBD
the market is the interest in well leased assets. hospitality services,
from local investors in these areas with sales
While this is not new, there is a definite flight to real estate agencies Vacancy rate
generally from circa 6.5% to 8.0% in that time.
better quality stock with secondary assets being and financial and legal
Older retail strips such as Brisbane Road,
Mooloolaba, the Nicklin Way along Kawana,
more difficult to sell and often seeing a discount.
Another impact is larger single tenant style space
services. We may see
Toowoomba’s CBD
28%
Aerodrome Road at Maroochydore and Bulcock being priced with higher risk given it is difficult slowly transform into CBD space
Street at Caloundra have shown far higher levels to secure tenants with quantum of rentals over a food and service leased to the
of volatility. Vacancy levels have fluctuated in $100,000 per annum in the current market. based hub, with service industry
these areas, although Council streetscape works traditional retail stores
However, with continued low interest rates
have impacted along Bulcock Street. Now these concentrated in the
predicted, it is likely that yields will remain strong in
works have finalised, we are seeing some renewed major shopping centres and bulky goods precincts.
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this market during 2020. This is despite the threat
interest from local tenants. Subsequently, CBD retail rental rates are likely to
of online retail sales and failure of a number of
come under pressure during 2020.
An interesting sale from large retailers over the past 12 months.
January 2020 of 106 6% - 8% We note that due to the recent development of
Brisbane Road, Mooloolaba Toowoomba/Darling Downs both convenience and neighbourhood centres,
has indicated the continued Mooloolaba Similar to the national retail market, the there is more retail space available within the local
strong demand from Esplanade yields Toowoomba CBD retail market has faced some Toowoomba market than ever before, therefore
local investors for well (108/19) challenges over the past few years. The major competition for tenants is strong and vacancy rates
leased local strip assets increase in online shopping has played a crucial role have increased. There has been strong growth in
with a strong WALE. This in this. In Toowoomba, the redevelopment of Grand franchise food outlets, which have underpinned
property sold for circa $2.3 million with seven local Central Shopping Centre by QIC has impacted CBD new convenience centres with predominantly food
tenants in place at a WALE of 1.95 years, indicating retail occupancy rates. Grand Central has attracted related tenants.
a yield of 6.02%. This asset had an even spread of some CBD retail tenants to the newer tenances
risk across the asset with no anchor style tenant. in the centre, as well as attracting national and Townsville
international brands that were previously not The retail market in Townsville during 2020 is
Our marquee tourist style strips have also
present in the local market. This has increased likely to maintain its status quo with the greater
fluctuated during 2018/19. Mooloolaba Esplanade
competition for small retail business owners. economic climate in the retail sector making for
has had yields from 6% to 8% depending on the
tough conditions.
size of the asset and strength of lease. Larger According to a 2019 Ray White Commercial
strata titled holdings with limited lease term left survey, the vacancy rate in the Toowoomba CBD Generally speaking, we are seeing a firming in
have been at the upper end of this yield range, is approaching 19 percent. The service industry is yields in the broader retail sector, however there
however sales in Hastings Street have continued occupying the largest market share, with over 28 appears to be limited potential for rental growth
to firm in that time with recent sales with strong percent of properties within the CBD being leased in the current environment and a higher risk of
13increasing vacancies on the back of looming lease High exposure CBD The Cairns retail property market overall has Month in Review
expiries with no current commitment to re-lease. retail space remains experienced little change over the past 12 March 2020
reasonably well months and is expected to see little change in
Ageing neighbourhood centres with a single anchor
occupied, but vacancies the coming year.
tenant will likely present a higher risk due to capital
are more noticeable
expenditure requirements and cash flow volatility.
in the lesser exposure Rockhampton
The potential for redevelopment of these centres in
locations and on the INDICATIVE We expect a continuation of challenging leasing
the current market is also limited.
CBD fringe. Rents have RENTS market conditions within the retail sector
The smaller sub-neighbourhood centres offering a remained generally throughout 2020.
Prime Cairns CBD
mix of fast food and drive through options are likely stable, showing ranges
$1000 to $1750/sqm The bulky goods retail market had been dominated
to remain the retail flavour during 2020. of $600 to $800 per
by the sale in August 2019 of the Bunnings site in
square metre per Cairns CBD Fringe
Rockhampton for $43.5 million at a reported yield
Cairns annum for prime CBD $600 to $800/sqm
of about 6%, however as 2020 begins we note that
The Cairns retail property market passed through space and $1000 to
agents are advertising two significant sales.
the bottom of the cycle during the course of 2014, $1750 per square metre
but the limited recovery thus far means that the per annum in key tourist precincts such as the The Fantastic Furniture building, which is subject to
retail property market remains relatively flat. Cairns Esplanade. a lease, is reported to be under contract at a yield
It must be also said that retail property sales in below 8% and the ex-Joyce Mayne building is also
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Blue chip retail located within the main Esplanade
Cairns are extremely sporadic, with most sales reported as being under contract and has been
tourist strip as well as the CBD show reasonably low
involving mixed use retail and office buildings or subject to long term vacancy. In this bulky goods
vacancies, although there is also limited demand
tenant buyouts of single premises. retail space, we expect 2020 to bring a renewed
from new businesses. There remains good investor
push to find occupants for both the ex Joyce Mayne
The level of general commercial property sales in demand for well leased properties which rarely
and the ex Bunnings sites which are both within the
Cairns, inclusive of retail and commercial office come onto the market.
Yaamba Road bulky goods precinct.
premises, highlights that activity in the Cairns
The most notable recent retail sale was that
commercial market remains well below the pre We note the opening of Rockhampton’s first Aldi
of the Katies Centre, a 1100 square metre site
GFC levels. Sales volumes have been gradually supermarket in 2019 and many are hoping their
situated on the very highly exposed corner
rebuilding, but are still only averaging around 100 much anticipated northside store will follow in 2020.
of Abbott and Shields Streets. The site was
sales per annum. Median prices paid specifically
improved with an old single level retail building of In the neighbourhood and smaller regional centres,
for strata titled premises have increased mildly
approximately 975 square metres and sold for $7 we note some significant vacancies. The success
over the past several years, but our general
million. The building has since been refurbished of the neighbourhood shopping centres has
impression is that prices per square metre of
at considerable cost to as new with most of the more recently been dependent on the presence
floor area are mostly stable within the $2,500 to
building leased to TimeZone. of substantial anchor tenants (ie Woolworths,
$4,500 range.
Coles, IGA) and the affordability of the asking
rental. While there are significant vacancies in
some centres, it will be worth keeping an eye on
High exposure CBD retail space remains reasonably well Allenstown Square. We are aware that the owners
occupied, but vacancies are more noticeable in the lesser have secured a substantial number of residential
properties immediately surrounding the centre
exposure locations and on the CBD fringe. over the years and demolition and house removal
14works are nearing completion. There have not been in Urraween and Pialba and the slow take up of Property investments associated with non- Month in Review
any public announcements regarding the owner’s lots in Kensington Bundaberg could see further discretionary retailing (groceries and fuel) are March 2020
plans for further expansion or redevelopment of diversifying of land uses which is a big factor in expected to remain in high demand throughout
this site, however we anticipate this may come to attracting land sales in retail areas. 2020. With lower interest rates, we expect that
light in 2020. yields for well anchored neighbourhood, regional
Something to keep an eye on will be the impacts
and sub regional shopping centres and lessors’
CBD retailing remains difficult as evidenced by the the Hinkler Deal projects could have on the
interests in service stations could firm throughout
significant vacancies in the precinct however we traditional retail centres in Hervey Bay and
the course of the year if any are offered for sale.
note the construction of the new Rockhampton Art Bundaberg. The Fraser Coast Regional Council has
Gallery on Quay Street at a cost of $31.5 million. purchased properties towards the northern end of
It is the Council’s hope that the gallery will be Main Street in the traditional retail area of Pialba
one of the main stimuli in the regeneration of the for the proposed redevelopment of the Hervey
Rockhampton CBD. The new gallery will be nestled Bay CBD and Bundaberg Regional Council has
within the Riverside Redevelopment and will begun the process for de-maining Quay Street in
contribute to the life and atmosphere of the region. the Bundaberg CBD for the redevelopment of the
Construction is expected to be completed mid 2021. riverside precinct.
Gladstone Mackay
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We expect a continuation of challenging leasing We expect a continuation of challenging leasing
market conditions within the retail sector market conditions within the bulky goods retail
throughout 2020 and anticipate little change to sector throughout 2020. Recent evidence
the Gladstone retail property market in the next suggests attractive incentives are now becoming
12 months. common and in some cases are masking a decline
in effective rents which now range from around
Wide Bay $230 to $260 per square metre per annum gross
It has been business as usual for Bundaberg and for large format tenancies of 400 to 500 square
Hervey Bay’s retail property markets. Vacancies metres in established retail complexes.
have been stable, rents have been solid and supply
CBD retailing remains difficult as evidenced by the
of new retail premises has been slow and calibrated
closure of Kaytown Shoes in Sydney Street after 54
not to over supply the market.
years because of strong online and shopping centre
Secondary retail premises with large floor areas are competition. Advantage Chemist has also vacated
still under pressure with very few tenants seeking their large CBD tenancy in Sydney Street and has
large retail showrooms in secondary locations. The opted to rebrand as Chemist Discount Centre in a
continuation of development along Main Street fringe location.
Something to keep an eye on will be the impacts the Hinkler
Deal projects could have on the traditional retail centres in
Hervey Bay and Bundaberg.
15South Australia
Month in Review
March 2020
Adelaide and grocery sales The retailers that continue to outperform others
There’s no shortage of doomsayers when it only account for 3% are the food retailers – cafes, restaurants and
comes to the retail property sector, as retail trade of online purchases, takeaway food services. As mentioned, we continue
continued to struggle in 2019. Transactions of meaning that to see strong performance for retailers that
retail properties also hit lows throughout last year supermarkets are can’t be replaced by the online domain, however
as investors became pessimistic about the sector, here to stay as anchor retail hubs and complexes need to be careful to
with sales volumes falling 22% on 2018 levels. tenants for a while yet. avoid excessive inter-competition between food
-22%
While the sector may be struggling overall; there Retail hubs are likely to retailers. Furthermore, the recent exit of Kaufland
are some shining lights in what looks a difficult take advantage of the from the Australian market has further enhanced
transition period for retail property. In essence, we recent growth in the the outlook for Australia’s supermarket giants.
are witnessing the retail sector attempting to adapt food sector, with more Sales volumes The supermarket oligopoly of Woolworths, Coles
to the changing consumer patterns arising from cafes and restaurants 2019 vs 2018 and Foodland can now invest in assets with more
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the growth of e-commerce and the online retail popping up in hubs to assurance that the newcomer isn’t going to take a
marketplace. draw tenants in, and portion of their market share.
then hopefully entice them into spending money
It’s evident that adaptation is going to be key Finally, it’s no secret that department stores are
in the specialty stores.
moving forward – the centres and retailers that feeling the pinch after the recently announced
can welcome and adapt to change will excel, or at Amazon Hub locations are beginning to pop up closure of Harris Scarfe stores around Adelaide.
least keep their heads above water, while those who around Australia; essentially a click and collect Furthermore, consumers are placing more
can’t will continue to struggle. Online purchases service where consumers can pick up parcels emphasis on the presentation of retail centres
currently account for 17% of non-food retail sales ordered online at a self-serve Amazon locker, and more emphasis on shopping as an experience.
in Australia and 9% of total retail sales – and this as opposed to having it delivered to their home. This is why we are seeing centres and main streets
number is only going to grow. Whilst we believe Delivery lockers are enabling larger centres to such as Burnside Village and the Norwood Parade
it is important not to overstate the impact of transform and become places where people plan developments to update their offerings. Retail
the online domain, it is equally important not to consume services and experiences, as opposed to centres and strip shops that are not well maintained
underestimate it – and retailers need to adapt to places where people simply purchase goods. are going to struggle. In this day and age, constant
survive. Property owners will need to embrace the refurbishment is required to keep shops and
There’s still room for rental growth and capital
online domain, shifting some of their sales and complexes updated, and to keep foot traffic coming
gains in the Adelaide retail property sector,
services online whilst simultaneously lowering through the door.
however at lower levels than will be evident in the
overheads at their brick and mortar stores.
industrial and office sectors. Interest rates are :
The trouble highlighted in retailers is for non- forecasted to drop, potentially twice throughout the
food goods – apparel, footwear and general year, and as a result of this we will see some more
merchandise – where it is easier, more convenient capital gains for property, yet with further yield
and often cheaper to purchase online. Food compression across the board.
16Western Australia
Month in Review
March 2020
Perth cost of funds in the current debt finance market and attracted offers between 5.00% and 6.25%.
The retail property market in Perth continues to and despite the general malaise that continues Interestingly, the yield differential between Coles
face challenging conditions. Demand for retail to impact the wider Western Australian economy or Woolworths anchored centres and those
space remains hampered by restrained consumer including softening rentals and a steady stream of anchored by IGA or Metcash (or even Aldi) remains
spending coinciding with the state’s sluggish business failures and receiverships. pronounced and in the order of 0.75% to 1.25%.
economic performance. Additionally, online retail
However, there are a certain number of key metrics Despite the conditions described above,
spending continues to grow rapidly and apply
that informed investors consider, relating to length institutional owned major regional and sub-
further pressure on the Perth retail market. Overall,
of remaining lease term, financial strength of the regional shopping centres within Western
despite some renewed optimism in the resource
tenant(s) and locational Australia have pushed ahead with expansions
sector, confidence in general remains depressed.
attributes, as investors following the removal of the cap on maximum
The above has translated generally speaking to take advantage of the retail floor space and the state government’s
rental rates for retail premises experiencing a spread between the low 5.00% push to create activity centres.
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downward trend over the past 12 months with cost of debt and large
incentives in the form of net rent-free periods or format retail investment TO 6.25% These expansion projects will have a focus on
delivering a better retail experience for shoppers
fit-out contributions prevalent. yields. Where all or
Investment-grade with the creation of food hubs, entertainment
a majority of these
Our team continues to field enquiries from tenants options (such as cinemas), health care and in some
metrics are satisfied, retail sale
struggling to meet rental payments for lease cases, residential apartments. As a result, some
very tight yields are yields 2019
agreements negotiated in more buoyant times. envisage these centres becoming community
being achieved in the
Landlords are being faced with the option of re- centres as opposed to traditional shopping centres
current market. Assets
negotiating lease terms to maintain occupancy or in the future.
that do not possess these key criteria are however
alternatively, risk extended periods of vacancy.
less sought after and often transact at a much In summary, Herron Todd White sees the existing
These conditions are more prevalent in secondary
higher yield reflecting the greater tenancy risk. malaise in retail market conditions continuing at
and suburban strip locations, although it appears
least in the short term as rental values remain
that prime CBD mall and high street locations In defiance of the above however, sites in the
under increased pressure and vacancy levels and
including Oxford Street, Leederville, Beaufort aforementioned high street locations remain keenly
tenant delinquency persist.
Street, Mount Lawley and Bay View Terrace, sought after despite the level of tenancy risk. This
Claremont are now beginning to experience is a function of the scarcity of sites offered to the Opportunity does exist for investors with an
a similar situation with vacancies becoming market in these locations and the high underlying increased risk appetite to acquire some of the less
commonplace. land value. Yields for similar sites below 5.5% are sought-after assets in the market place at yield
not uncommon. premiums, or assets which would benefit from
Investment grade retail property such as
repositioning or capital expenditure.
neighbourhood shopping centres however remain In respect to investment grade retail transactions,
a highly sought-after asset. Yield compression there were a number of such sales of late within the
is evident, largely driven by the low prevailing Perth metropolitan area. All were hotly contested
17Australian Capital Territory
Month in Review
March 2020
Canberra The outlook for 2020 is for the retail property
The Canberra retail property market has been market to remain steady however any increase in
steady for a number of years now. There has been interest rates or decrease in market sentiment may
strong retail interest in the CBD and suburban have a negative impact on prices in the region.
centres particularly in the City, Kingston foreshore
and Braddon. Secondary locations and older stock
have seen low levels of interest and we expect this
to continue.
With the Gungahlin to City light rail now complete
and a number of mixed-use developments in the
works along Northbourne Avenue, there will be an
increase in the amount of ground floor retail space
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available in the region.
We have seen a steady increase in the costs
of owning commercial property in Canberra,
particularly increases in territory rates. To offset
these increases, we have seen more investors
negotiating for net leases and increases in
recoverable outgoings.
Canberra’s retail turnover grew by 4.1 percent year
on year to December 2019 compared to 2.7 percent
year on year nationally. We have seen an increase
in the number of restaurants and cafés in the CBD
and suburban centres. The food retailing and café
and restaurant industries make up over half the
retail turnover in the region and the strong growth
in these industries has seen the ACT at the top
of the retail trade growth list in December (ABS -
Retail Trade – December 2019).
To offset these increases, we have seen more investors negotiating
for net leases and increases in recoverable outgoings.
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