By Aimee Chanthadavong
It’s not only retailers who are facing difficult times; retail property owners are also feeling the pinch.
BIS Shrapnel Retail Property Market Property Forecasts and Strategies 2013 to 2023 Report shows the level of transactions was over $6 billion in 2012 and is reportedly well over $3 billion year to date 2013. Despite these numbers, existing owners are ploughing more dollars into their centres as they continue to finish off development projects that were put aside in the wake of the global financial crisis.
Maria Lee, senior project manager at BIS Shrapnel and author of the report, said the retail property is facing its greatest challenges in decades, identifying there are number of reasons impacting the retail property owners.
“Firstly, aggregate retail turnover growth is likely to be modest over the next decade, as we are lacking two key drivers to growth—an economic boom and/or (marked) falls in the savings ratio,” she said.
“We are also facing changing spending patterns away from retail goods and services, partly—but not wholly—linked to the ageing of the population. On top of that, retail turnover to individual shopping centres will be diluted by strong levels of retail building—a new peak in commencements is expected in 2013–14.”
The report indicates the continued growth of online retailing could potentially dwarf the rise of the retail property market. It estimates the market share of internet retailing would likely increase from at its current six per cent to 11 per cent within five years.
“What this means is that more than $3 out of every $10 of additional expenditure will go online,” Lee said. “Put another way, the turnover growth through shopping centres would be a full one percentage point higher without the growth of online shopping. That’s highly significant.”
Another issue is the potential depreciation in the Australian dollar. BIS Shrapnel believes while there may be a boost to retail turnover from a lower dollar—because of less expenditure leakage overseas and more spending by overseas visitors in Australia—that will likely be well and truly offset by a negative impact on retailer profit margins.
BIS Shrapnel has calculated the impact of a substantial devaluation on retailer profitability and, hence, capacity to pay rent.
“Based on our forecasts of a 23 per cent depreciation against the Trade Weighted Index, we estimate that a retailer which imports 50 per cent of product sold will see its profitability fall to zero if it is to continue to pay current rents,” Lee said. “Clearly, this is not sustainable. This will impact their ability to pay rent, and vacancies could also be expected to rise.”
Taking all factors into account, BIS Shrapnel forecasts centre incomes to grow at an average pace of just two per cent per annum over the next five years—failing to keep pace with CPI inflation.