Goldman Sachs’ Australian retail REITs equity research report says retail risks are exaggerated - but conditions remain challenging, with weak sales growth seeing retail occupancy costs increasing.
The report says retail occupancy rates remain over 99 percent, with tenants signing new leases on unchanged tenure and at 4 to 5 percent p.a. increases.
“Few tenants are departing at expiry, leaving few vacancy options for incoming or expanding tenants. Taking prevailing annual lease expiries and looking at retention rates implies only eight specialty stores out of 275 in a typical regional shopping centre become available for lease per annum,” the report says.
The report says while it anticipates some closures, retailers will continue to seek new store openings to grow profit. It says this will see pricing power remain balanced in favour of landlords.
It says while retailers talk of store closings, evidence suggests that more stores are opened than stores are closed.
“Following our analysis, we remain comfortable with the fundamentals of shopping centres – we believe there is higher pricing and occupancy risk in sub- regional centres and prefer exposure to larger regional centre portfolios … We believe risks are overplayed,” it says.