Home Retail Are we running out of retail space?

Are we running out of retail space?

  • November 08, 2023
  • by Property Australia
Existing retail assets will reap the benefits of an under supply

Existing retail properties stand to benefit from a projected undersupply of 2.2 million square meters of floor space nationwide by 2032, potentially translating into an additional $20.5 billion in sales, as per findings from Colliers’ Population Growth Report.

The report found that demand for Australian retail centers will surpass the available supply, evident in the robust sales performance, positive rental growth across all retail assets in Q3 2023, and 99 per cent average occupancy rate nationwide.

Australia’s industrial real estate market has experienced significant rental growth and boasts one of the lowest national average vacancy rates globally, standing at just one per cent, as reported by Colliers’ Managing Director of Asia Pacific Retail Capital Markets, Lachlan MacGillivray.

“The retail development pipeline and scarcity of available sites in most major cities will see retail space struggle to maintain the current ratio of 0.91 square metres per capita, in light of the government’s national population projection of 29.8 million by 2032.” Mr MacGillivray said.

“Just to maintain the current per capita levels nationally for Super and major regional centres alone, an additional 1.13 million square metres of floorspace, the equivalent of nine Westfield Bondi Junction centres, will be required.

“Since these centres are nearly impossible to replicate due to land constraints, the existing assets within this high performing asset class will be the beneficiaries of population growth, absorbing an additional $10.9 billion of retail sales by 2032, which should see specialty sales increase by at least 33 per cent or around $3,000 per square metre.

“As the amount of retail floorspace available in Australia drops to 0.84 square metres per capita by 2032 – a stark contrast to the United States’ current 2.12 square metres, two examples of assets that are expected to outperform are Westfield Fountain Gate in Victoria and Westfield Chermside in Queensland.

“Both centres are extremely strong in high growth markets, turning over well in excess of $1.1 billion per annum with major landholdings presenting opportunities for additional and complementary uses such as Build-to-Rent, Build-to-Sell, student accommodation, office, medical and education services.

“We have seen Vicinity commence this journey via many years of strategic mixed-use development at Chadstone in Victoria and GPT have major plans for Highpoint in Victoria.”

In contrast to international counterparts, Mr MacGillivray said the unique and irreplaceable positions of renowned Australian retail centres, coupled with the potential for diverse usage, will continue to attract a larger customer base and propel the superior performance of retail assets in the years ahead.

“It would be impossible for new developments to replicate the success of Super and major regional centres, which have grown with communities since the 1950s, leveraging loyal consumer bases and frequent visitation,” he said.

“We are seeing increased domestic and offshore capital targeting this coveted investment class, which boasts an average of at least 1 trade area customer visit per week compared to 1 visit per month for their counterparts in the United States and United Kingdom.”

The performance of flagship centres in the recent quarter underscores their capacity for innovation and the cultivation of dynamic shopping experiences within their local communities. As noted by Colliers’ Associate Director of Research, Nik Potter, these centres are increasingly prioritising tenancy compositions that lean towards dining and entertainment offerings.

“These assets now comprise an average of 41 per cent of experience-based stores and 2.4 supermarkets, ensuring 11 of Australia’s iconic centres currently turnover in excess of $1 billion annually – a feat which only six achieved pre pandemic,” Mr Potter said.

“We have also witnessed positive momentum for rental growth for Super and major regional assets, with annual market rate growth of +1.6 per cent over Q3 2023.

“In the context of a looming major undersupply, we expect this positive leasing activity to continue to increase.

“The performance of assets across the Australian retail market will be enhanced by population growth, as brands continue to benefit from the halo effect of a bricks and mortar presence for online sales in their local areas.”