Retail growth will average 2.9 percent annually over the next five years, according to BIS Shrapnel’s Retail Property Market Forecasts and Strategies 2012 to 2022 report.
Maria Lee, BIS Shrapnel senior project manager, says there should be improvement following the subdued rates of turnover growth over the last few years.
“However, while we expect turnover growth to strengthen through 2012/13 and 2013/14 in line with a strengthening Australian economy, growth will remain relatively subdued in the medium to long term,” Lee says.
“Shopping centres will see markedly lower rates of turnover growth thanks largely to the growth of online shopping and the dilutionary effect of additional retail floorspace,” she says.
The report finds construction of retail floor space continues to outpace population growth and real retail turnover growth.
It says shopping centre incomes supported by fixed annual rental escalations in a low turnover environment could see specialty shop occupancy costs become unsustainable.
“The dominance of fixed annual escalations means that centre income growth will fluctuate within a fairly narrow band of around two to five percent per annum,” it says.
This could be weaker if the Australian dollar falls.
“Retailers and shopping centre owners are going to have to work harder than ever to sustain growth. It’s critical that they use the internet diligently and creatively to service their customers and enhance the in-centre shopping experience,” Lee says.
The report says weak income growth has clear implications for total returns to retail property. Prospective returns for regional shopping centres are between 9 and 10 percent over a 5 and 10-year investment.
Lee says some investors are likely to turn attention to ‘stronger-performing office and industrial property instead’.