2019 Retail Property Market Outlook
Forecasting the year ahead within the retail sector of Melbourne may be considered as the most difficult sector to consider. We have included some initial comments from colleagues within the industry, coupled with our thoughts.
“We expect retail investment activity in 2019 to be at a similar level to this year (2018). Buyers have become more cautious and are factoring in more conservative assumptions. Owners are likely to meet the market in order to execute on their strategic investment decisions and extract value from other assets in their portfolio. Retail offers relative value given the attractive yields compared to other asset classes. The opportunity for investors in 2019 will be to acquire retail assets at attractive pricing”
Simon Rooney, JLL Head of Retail Investments, Australasia
(Source: Australian Property Journal 20/1/2019)
“The key driver here has been population/catchment growth and an assumption that local governments will welcome development proposals designed to maximise site usage within core municipal zones. We expect to see increasing interest from Chinese buyers, and Asian buyers in general.”
Mark Wizel, CBRE National Director
(Source: Australian Property Journal 20/1/2019)
“2019 will see a slowing of all pipeline development activity across the Australian retail sector”
Michael Bate, Colliers International, Head of Retail (Source: Australian Property Journal 20/1/2019)
“Softening of yields, some retail centres will struggle. The risk plays out as a property risk rather than a market risk”
Frank Gelber, BIS Oxford Economics, Head of Property
(Source: Australian Property Journal 20/1/2019)
“Yields in most retail strip centres will soften from the levels of 2017/2018.p
Caution from prospective purchasers coupled with current credit conditions and potential changes from the Royal Commission may provide some degree of caution from prospective purchasers within the market segment.
If a slowdown in the Chinese market is evident, expect investment inflow to retail to also diminish.
It’s not that simple to include transactions of shopping centres and large format retail into the same investment basket as sub $5M retail. It is simply big end of town versus mum and dad investors.
Expect a substantial increase in disputes between Landlord and Lessee this year, both in regard to lease structure, rent reviews and future of no name brands in this space.
Lessee/Landlord relations now have travelled a full circle, with Landlord’s requirements being receptive to the Lessee”
Mark Ruttner, First Valuation Group, Managing Director
Retail Key Points to Consider in 2019
- Due to current credit squeeze and availability of past funding, general “consumption” of retail consumers is struggling or at the very least diminishing.
- Retail space has become uneconomical for bricks & mortar retailers.
- Probable rental reductions likely of which may make current lease terms more sustainable.
- Realisation of changing “risk profile” of tenants in suburban strip centres.
- 2019 will be disruptive as to the retail sector, with landlords required to reduce rents and hence retain existing tenancies.
- Bricks and mortar retailers are currently experiencing declining revenues and price competition. Operating costs of wages, shipping costs and rentals have also been rising.
- Rentals are the only option for Lessees within a declining environment of consumer spending.
- Late 2018 and for the year ahead in 2019, Lessee bargaining power with Landlords is strengthening.
- 2019 will start with the emergence of shorter lease lengths.
- Existing retailers have no choice but to aggressively renegotiate rental down.
- Obviously if rents start to decline, capital values will follow, with yields increasing.
- For retailers, the key word is “rental sensitivity”.
- Consumer spending solely dictates the retail real estate market.
We wish all participants within the retail sector all the best for 2019.
If you require any advisory/valuation assistance, please do not hesitate to contact Mark Ruttner on
03 9690 1112 or mr@fvg.com.au
