Retail trade in Australia is showing signs of improvement after recording its strongest growth since July 2017, as landlords and tenants continue to adapt their business strategies to remain relevant with consumers.
CBRE Australia’s latest Q3 Retail Marketview report found retail sales grew by 3.2% year-on-year to August 2018, largely driven by the food retailing category (inclusive of supermarkets, liquor and specialised food), which recorded its highest growth since December 2014 at 4.2%.
Victoria was the stand out state with retail trade up 5.6%, followed by ACT and New South Wales, which recorded 3.9% and 3.5% growth respectively.
CBRE’s Head of Retail & Logistics Research, Kate Bailey, said the growth in trade correlated with major landlords actively repositioning their shopping centres to tap into customer demand for food and entertainment experiences.
“Shopping centre landlords are incorporating a higher proportion of dining and entertainment facilities in a bid to drive foot traffic to their centres and capitalise on the strong retail spend in this category,” Ms Bailey said.
“Many centres are forging distinctive retail identities. We have noticed a significant investment by regional centres into entertainment, leisure and experience while neighbourhood centres are placing a heavy focus on fresh food and convenience offerings.”
Ms Bailey said the most recent examples are Vicinity and Scentre Group’s $90 million upgrade of Roselands Mall in Sydney and the $21m upgrade of Westfield Woden, Canberra.
In the year to August 2018, clothing and footwear retailing in shopping centres recorded strong growth of 4%. The department store category also grew by 1.8%, with this result, while modest, standing well-above the -1.1% recorded in the previous corresponding period – a positive read-through for the struggling sector.
In CBD retail precincts, clothing and footwear retailing was the leading category, with 3.9% increase in sales nationally in the year to August 2018 – substantially higher than the 1.1% growth in the corresponding period.
Zelman Ainsworth, CBRE Retail Leasing Director, added while clothing and footwear retailing still dominated CBD trade, the rising presence of the F&B sector was evident considering the number of new leases taking place nationally.
“We are noticing a shift in retail tenancy mix in CBD precincts across Australia and it’s evident landlords are placing a more heightened focus on F&B offerings than they previously have,” Mr Ainsworth said.
“The demand for F&B services is surging – it’s common for the average millennial to eat out as much as four times a week – so there is room for more hospitality operators to join the market and/or occupy further retail space in the CBD precincts, particularly when other retail services are moving online.”
“That being said, other retail categories such as clothing and footwear are continuing to adopt new strategies to remain relevant. Some brands are choosing to opt for larger stores to showcase their brand and ethos. Others are choosing smaller pop-up stores to complement their online presence and use bricks and mortar to maintain a personal connection with their customers.”
“Today, retailers are no longer competing on price – customers are more invested in human interaction and experiences, and that is ultimately the key to any retailer’s success,” Mr Ainsworth concluded.
Despite these improving trade conditions, national retail rents were static in Q3 due to instore sales often failing to keep pace with fixed rental increases. Sub regional centres have experienced rental decline - 4.9% year-on-year - because of landlords offering reduced rents to avoid vacancies within centres.
On the investment front, overall transaction activity was down slightly in Q3 at $2.4 billion, compared to $2.6 billion in Q2. Shopping centre transaction levels however remained buoyant during the quarter, accounting for $1.2 billion of deals. Retail asset yields remained stable thanks to the strong quarter-on-quarter compression (25 basis points) recorded in Melbourne where prime and super prime yields sharpened to 3.6% and 3.5% respectively.
CBRE’s report forecasts investment activity to increase in 2018’s final quarter due to several significant transactions in the pipeline.
CBRE Australia’s latest Q3 Retail Marketview report found retail sales grew by 3.2% year-on-year to August 2018, largely driven by the food retailing category (inclusive of supermarkets, liquor and specialised food), which recorded its highest growth since December 2014 at 4.2%.
Victoria was the stand out state with retail trade up 5.6%, followed by ACT and New South Wales, which recorded 3.9% and 3.5% growth respectively.
CBRE’s Head of Retail & Logistics Research, Kate Bailey, said the growth in trade correlated with major landlords actively repositioning their shopping centres to tap into customer demand for food and entertainment experiences.
“Shopping centre landlords are incorporating a higher proportion of dining and entertainment facilities in a bid to drive foot traffic to their centres and capitalise on the strong retail spend in this category,” Ms Bailey said.
“Many centres are forging distinctive retail identities. We have noticed a significant investment by regional centres into entertainment, leisure and experience while neighbourhood centres are placing a heavy focus on fresh food and convenience offerings.”
Ms Bailey said the most recent examples are Vicinity and Scentre Group’s $90 million upgrade of Roselands Mall in Sydney and the $21m upgrade of Westfield Woden, Canberra.
In the year to August 2018, clothing and footwear retailing in shopping centres recorded strong growth of 4%. The department store category also grew by 1.8%, with this result, while modest, standing well-above the -1.1% recorded in the previous corresponding period – a positive read-through for the struggling sector.
In CBD retail precincts, clothing and footwear retailing was the leading category, with 3.9% increase in sales nationally in the year to August 2018 – substantially higher than the 1.1% growth in the corresponding period.
Zelman Ainsworth, CBRE Retail Leasing Director, added while clothing and footwear retailing still dominated CBD trade, the rising presence of the F&B sector was evident considering the number of new leases taking place nationally.
“We are noticing a shift in retail tenancy mix in CBD precincts across Australia and it’s evident landlords are placing a more heightened focus on F&B offerings than they previously have,” Mr Ainsworth said.
“The demand for F&B services is surging – it’s common for the average millennial to eat out as much as four times a week – so there is room for more hospitality operators to join the market and/or occupy further retail space in the CBD precincts, particularly when other retail services are moving online.”
“That being said, other retail categories such as clothing and footwear are continuing to adopt new strategies to remain relevant. Some brands are choosing to opt for larger stores to showcase their brand and ethos. Others are choosing smaller pop-up stores to complement their online presence and use bricks and mortar to maintain a personal connection with their customers.”
“Today, retailers are no longer competing on price – customers are more invested in human interaction and experiences, and that is ultimately the key to any retailer’s success,” Mr Ainsworth concluded.
Despite these improving trade conditions, national retail rents were static in Q3 due to instore sales often failing to keep pace with fixed rental increases. Sub regional centres have experienced rental decline - 4.9% year-on-year - because of landlords offering reduced rents to avoid vacancies within centres.
On the investment front, overall transaction activity was down slightly in Q3 at $2.4 billion, compared to $2.6 billion in Q2. Shopping centre transaction levels however remained buoyant during the quarter, accounting for $1.2 billion of deals. Retail asset yields remained stable thanks to the strong quarter-on-quarter compression (25 basis points) recorded in Melbourne where prime and super prime yields sharpened to 3.6% and 3.5% respectively.
CBRE’s report forecasts investment activity to increase in 2018’s final quarter due to several significant transactions in the pipeline.
For Australian/international news or global stories, follow us on Twitter: @cbreaustralia
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.