By Aimee Chanthadavong

It’ll be another decade at least before we’ll see bricks and mortar retailing pick up again, according to the BIS Shrapnel retail property sector report.

The Retail Property Market Forecasts and Strategies 2012 to 2022 has indicated the retail growth experience from the mid-1990s to the GFC has run its course, forecasting growth over the next five years will be subdued at an average 2.9 per cent compared to almost five per cent per annum, which was experienced in the ‘golden age of retailing’.

“There will be a golden age at some point as there was one in the late 1980s and just before the GFC. Perhaps there will be in 15 years time but we can’t see it happening in the next five to 10 years,” Maria Lee, BIS Sharpnel senior project manager, told RetailBiz.

On the other end of the spectrum, online retailing will continue to grow. According to the report, online retailing has two-pronged impact – it takes market share from traditional retailing and it provides consumers the opportunity to make purchases from overseas websites.

“The issue retailers are facing is not just the growth of online retailers. But households have higher saving rates, which mean overall spending it not growing as much. They are also changing the allocation of their spending. This means they’re not necessarily spending their money on retail goods and services but are putting their money towards online,” Lee said.

The report did note however the online offerings of the top 20 domestic retailers have increased by over 50 per cent

“I think the first thing here is retailers need to really acknowledge this is happening because for a long time Australian retailers have ignored it, which is probably why Australians started shopping overseas because they didn’t have access to local online stores. But we are starting to see a change in the right direction, mainly in the last year, which is really important,” Lee said.

“Retailers really need start developing their online system as an integrated system rather than separately.”

At the same time, the BIS Shrapnel study also showed how aggregate turnover growth will flow through to shopping centre incomes and, in turn, investment returns. It highlighted construction of new retail floorspace continues to outpace both population growth and real retail turnover growth. This has been a long term trend in Australia, broken only during the late 1990s/early 2000s period of unusually strong turnover growth.

“It’s surprising that this is happening now, when floorspace growth is relatively muted due to the challenges facing development in the post-GFC environment,” says Lee. “It means that, in real terms, turnover per square metre is falling.”

Even though turnover growth is weak, shopping centre incomes are supported by the fact that the majority of tenants pay fixed annual rental escalations of around four per cent.

“The problem is that if rent is going up by four per cent a year but turnover is growing by less than that, occupancy costs rise,” says Lee.  “Specialty shop occupancy costs are at an all-time high. They are unsustainably high for some tenants.”

Those costs are leading occupants to either not renew at the end of the lease or demand a cut in rent to stay. If they leave, the incoming tenant is achieving a more attractive offer, in a combination of lower rent and/or leasing incentives. “There’s widespread evidence of slowing centre income growth as a result,” said Lee.