A staggering $9.21 billion worth of retail assets was transacted in 2018, according to the latest research from Savills Australia.
The agency’s Q4 2018 National Retail Quarter Time research report released in late February highlights the sales volume as the second highest on record, reflecting strong ongoing investor confidence in the sector.
Savills National Head of Retail Investments, Ben Parkinson, says transactions on Australia’s East Coast accounted for more than 90 per cent of total sales of retail property, while sub-regional and regional centres accounted for almost half of total investment by value. In fact, in NSW, sub-regional and regional sales accounted for more than half of the last reported sales over $5 million.
“We are seeing the ongoing trend of higher-than-average transaction volumes across the sector, as owners seek to reposition their portfolios and recycle capital,” he says.
Savills research recorded foreign investors accounting for just under 15 per cent of total sales volumes in 2018, compared to 22 per cent in the year prior. This reflects more normalised levels when compared to historic data, in part attributed to the tighter capital outflow controls from mainland China.
“Competition to acquire non-discretionary neighbourhood centres and freestanding supermarkets was very strong in 2018, and is expected to remain so looking forward,” Parkinson says.
“Although total retail turnover growth has been subdued in large part due to declining and flat performance of department stores and discount department stores in the past 12 months, non-discretionary spending has grown with food retailing accounting for approximately 54 per cent of total retail turnover.
“Given continuing population growth metrics, this is expected to remain the case going forward,” continues Parkinson.
Positive outlook for retail sector
Savills Director for Research and Consultancy, Shrabastee Mallik, maintains a positive outlook for the retail sector in 2019.
“When we look at indicators like company profits and labour market metrics, we are seeing a revitalisation occurring,” she says.
“The unemployment rate fell to 5.0 per cent (in trend terms) in December, the lowest it has been since 2011.”
Since the report was released, the unemployment rated has remained at 5.0 per cent into 2019, reflecting a 0.5 per cent fall since January 2018.
“Most positively, this drop was as a result of employment growing faster than the size of the labour force, which provides us with additional positive signs that we will see wages growth rising above the inflation rate this year,” continues Mallik.
Mallik also says retail spending has marginally increased, with a forecasted increase back up to close to that we saw in July 2018.
“Retail spending is forecast between 2.5 per cent and 3.0 per cent through the course of 2019, albeit skewed to less discretionary retail spending,” she says.
While retail spending reached 2.8 per cent in January 2019, it is still a significant drop from October 2018 (3.5 per cent), but much higher than the same time last year when spending stagnated at 2.5 per cent.
“In a continuing trend, café and restaurant retailing performed well above long-term averages,” she says.
Is e-commerce retailing still a threat?
While Mallik acknowledged the rise of e-commerce as one of the major concerns for the retail sector, she discounted the magnitude of the effect online retailing would have on traditional retail centres.
“In Australia, online retail turnover only accounted for 6.6 per cent of total retail turnover, as at November 2018,” she says.
This has grown to 7.2 per cent in 2019.
“What many people see are statistics that talk about the growth in online retailing and foot traffic on online retail websites compared to foot traffic at physical retail stores – and while this remains true, the growth in online retailing is off a much lower base,” says Mallik.
“There is also a trend that many people are not looking at, which is the growing number of online retailers that are evolving physical store networks as they expand their operations, with more than 40 per cent of online retail spending now taking place via omni-channel, including a store visit.
“Once these start-ups become successful on the internet, they look for funding or channel existing funds into opening up a shopfront or warehouse space.”
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