Lachlan MacGillivray, Managing Director of Retail Capital Markets, Colliers
The retail asset class is primed to be a beacon for global investors as the focus changes to the Asia Pacific region amid market swings, according to Colliers’ newest investment research findings.
Despite experiencing a 15.4 per cent decrease in retail sales volume in 2022 compared to the 10-year average, the sector is showing signs of stability with average yields remaining stable nationally, according to Colliers.
The positive outlook for the industry is further highlighted by the fact that 60 per cent of foreign investment, worth around $1.2 billion, occurred after interest rate rises in the second half of 2022.
With instability across European and American markets, investors have shifted focus to Asia Pacific, and more specifically Australia, with Australian commercial property being the number one target for overseas capital in the region, according to Colliers’ Managing Director of Retail Capital Markets Lachlan MacGillivray.
“Unlike other periods of economic uncertainty, there is no deficiency of capital in the market, and quality assets located in strong catchments will continue to source high demand, regardless of any economic uncertainty.” Mr MacGillivray said.
“In addition to posing an attractive long-term defensive proposition and inflationary hedge, Australian retail also offers a unique investment opportunity in the global landscape, due to relatively low supply of shopping centres and robust population growth.”
Australian retail sales volumes fell 0.2 per cent in the December quarter 2022, according to figures released by the Australian Bureau of Statistics (ABS), while retail turnover fell 3.9 per cent.
Ben Dorber, ABS head of retail statistics, said it was the first retail turnover fall for 2022 after eleven consecutive monthly rises and was likely due to slower spending due to high cost-of-living pressures.
“Retail prices remain high, but price growth slowed to 1.1 per cent in December due to flat food retailing prices and additional discounting during Black Friday sales,” he said.
“This was the smallest rise in retail prices for 2022.”
In the group’s most recent financial year report, Region Group Chief Operating Officer Mark Fleming stated that the group’s convenience-based retail centre performance has been resilient.
“Solid leasing and sales results [are] driving the performance of our core business,” Region Group Chief Operating Officer, Mark Fleming said.
“Our non-discretionary tenants continue to deliver solid sales. We remain strategically focused on remixing our retail properties toward non-discretionary categories and reducing our long-term vacancies where deals are accretive.”
At the close of 2022, there was 0.86 square meters of retail gross lettable area per capita in Australia, compared to 2.12 square meters in the United States and 1.51 square meters in Canada. Due to an increase in population, the average amount of retail space per person in Australia is projected to decrease by 10 per cent by 2023’s end, leading to a shortage of supply in specific markets.
“The retail asset classes which proved standout performers in 2022, will undoubtedly elevate the strength of the market this year,” Mr MacGillivray said.
“The experience-based nature of Australian shopping centres, anchored by supermarkets, fresh food precincts and stores addressing everyday needs, ensure they attract higher footfall and visitation frequency than international competitors.
“We expect to see increased appetite from domestic and offshore capital targeting Australian Super Regional centres since they comprise an average of 41 per cent of experience-based stores and 2.4 supermarkets, supporting around $868 spend per trade or catchment area annually.
“Comparatively, America’s shopping centres only contain an average of 25 per cent of experience-based stores and zero supermarkets per trade area, which receive an average spend of $638 annually.
“The large transactional volume of sub-regional centres is typically due to lack of availability of any Super Regional transactions, which are arguably the rarest and most defensive property asset class in the country.
“With large land holdings, prominent locations and exceptional tenant and income diversity, Super Regional centres have been the strongest rebounding Retail assets post pandemic.”
Mr MacGillivray said institutional investors accounted for 44 per cent of all transactions in 2022 and are increasingly looking towards sustainable assets.
“The Australian retail market’s position as one of the most carbon-efficient markets in the world, which has been leading the push for ESG in Asia Pacific for established protocols like European markets, will continue to attract capital,” he said.
Region Group Chief Executive Officer, Anthony Mellowes said it is on track to achieve Net Zero for scope 1 and scope 2, by FY30.
“The progress we have made in executing our sustainability initiatives in 1H FY23 has put us in good stead to deliver our Net Zero target earlier than expected,” he said.
“We have completed the installation of 9.0MW of solar to date, of our 25MW target by FY26, and have commenced the construction of another 5.6MW solar and the design of a further 12.6MW solar.”