The rise of online retail has been a major concern for brick and mortar stores, but recent data suggests that physical shopping centres are still very much alive.
Ray White Commercial Head of Research Vanessa Rader noted that while non-food online retail sales have grown significantly in recent years, food sales remain a key driver of the physical retail market.
“Shopping centres are not dead,” Ms Rader said.
“However, the types of tenants that occupy brick and mortar retail are certainly changing, with a greater weighting to food and service type industries.”
Ms Rader said over the past year non-food online retailing accounted for 16.5 per cent of all retail sales, while food represented just 5.6 per cent.
While the pandemic saw a spike in online food sales, this figure has since dropped back down to pre-pandemic levels.
Despite the continued growth of online sales, investors are still showing a strong interest in retail assets.
Ms Rader said more than $14.56 billion in retail assets transacted across Australia in 2022, highlighting a strong confidence in this asset class by a range of private and institutional investors.
“Convenience and neighbourhood assets remain in high demand given this attraction to food, often anchored by a supermarket and home to supplementary specialty food retailers,” she said.
Returns data from MSCI also suggests that sub-regional and neighbourhood centres have outperformed across both capital and income returns over the past year compared to larger major and super regional centres.
Across the country, total returns for retail have averaged 6.8 per cent in 2022, ahead of office assets, due to consistent income returns despite limited capital appreciation.
While food retailing continues to grow its share of retail trade, there has also been a strong uptick in luxury brands growing their retail footprint in Australia’s major CBDs, growing suburban communities, and tourism destinations.
Anticipated robust tourism levels and the attractive Australian dollar for overseas visitors is likely to spur on this segment during a time where domestic discretionary spending levels out.
However, Ms Rader warned that pressure on yields will continue throughout 2023, and high street retail yield movements are likely to be in response to the lease covenant, quality, and location.
With increased land tax attracting many commercial assets this year, this is another pressure point for owners which may see greater distressed assets come to market, which may also impact these rates.
Despite these challenges, Ms Rader remains optimistic about the future of retail.
“As buyers continue to look towards these assets and our shopping trends still see us visiting these centres and stores, retail is far from dead but our expectations and experiences will continue to evolve,” she said.