What’s happening in the retail property market?

“On the ground, retail investments remain highly sought after,” says Rick Silberman, Savills director, retail investments. “Despite transaction volumes being lower than the same time last year, this is partly due to the lack of quality stock available, which is driving demand and resulting in yields staying relatively firm.”

Ian Shimmin, a director at interdisciplinary consulting firm Urbis, says the tailwinds that will support the retail property market through 2023 include our combined household savings of $285 billion, accumulated over the last three years.

“Despite the fact that the savings ratio is now 4.5 per cent, down from trend levels of around five per cent, that’s still a huge war chest of savings,” he says.

The return of international tourists and students will further help prop up retail demand and, with the borders open, a net inflow of 235,000 migrants is expected over 2022/2023.

There has also been some overdue wage growth, and while there has been a reduction in CBD worker days, Shimmin says an increase in suburban worker days means workers are more likely to head to their local shopping centre for a coffee, lunch or dry cleaning.

Shimmin reports an ongoing trend of private wealth being invested in shopping centres at the moment. 

“The syndicators are back, bringing together family money,” he says. “Those types of groups are more active now and the institutional investors are probably sitting on their hands a little bit at the moment, waiting to see what happens.”

Shimmin is also keen to dispel the myth that e-commerce is replacing foot traffic to physical stores.

“Right now, post-COVID, online sales as a proportion of total retail sales is 12.8 per cent,” he says. “Of that amount, about 40 per cent has come back to physical stores because many stores fulfil an online order from the store.”

Shimmin says stores and shopping centres in Australia are very well placed to capture retail spending no matter which channel it goes through, particularly those in premium catchments.

Savills, which has a national team dedicated to retail investment and specialises in middle markets with assets priced between $10 million and $100 million, says quality assets, often in metropolitan locations with a population boasting a high disposable income, are the jewel in the retail crown.

Tenants will often include ASX-listed companies like Coles, Woolworths or Bunnings with long leases in place.

Silberman says investors are consistently seeking retail property with secure fundamentals, including land-rich assets, long leases and properties that offer the potential to add value over time.

“These types of assets, in Victoria specifically, have always been incredibly tightly held,” he says. “If you were to do a state-by-state comparison, year-on-year over the last 10 years, Victoria typically produces the lowest level of transactions.”

Blue-chip retail assets with the right attributes are often generational acquisitions, bought to hold, not to trade, Silberman says. 

“So regardless of what’s going on in the market, and people talking about interest rate hiking cycles, when they do come up, the scarcity of stock continues to drive demand and pricing,” he says. “There is still a lot of capital in the market looking to be deployed.”

Silberman says high-net-worth investors are commonly looking for single-tenant assets leased to essential service providers like grocery, hardware and liquor operators, but these are in noticeably short supply.

“Investors are attracted to standalone tenants as they generally require minimal management,” he says. “Often, more risk-averse investors want the peace of mind to know their asset is safe, defensive and recession-proof  – a set and forget.”

Silberman’s message to the owners of these kinds of assets is simple: “If they’re wanting to sell but hesitant due to feeling we are in an uncertain time, the demand for these assets is as high as it’s ever been, which is likely to translate to very strong results.”