ELEVATED spending in grocery and household goods amidst the COVID-19 pandemic has left the retail sector in good stead to recover in 2021.
According to the CBRE Market Retail Outlook for 2021, retail spending is expected to remain raised for the first half of the year, offsetting losses from international tourism.
“Softer yields when compared to other commercial property sectors along with the opportunity to reposition retail assets to maximise rental growth presents good value to investors and may help support a recovery in retail transactions in 2021,” said Kate Bailey, head of logistics and retail research at CBRE.
Neighbourhood centres have seen the lowest level of impact from the pandemic, with supermarkets seeing record sales and reporting signs of stabilising.
Since February of last year, Australian consumers have shifted their spending towards food, with a notable increasing in grocery retail, while cafes restaurants and takeaway fell.
Likewise, while household goods and other retail increased on 2019 levels, overseas and domestic travel understandably plummeted.
This is expected to continue into 2021, with the $60 billion that Australians typically spend on international travel to be redistributed locally, potentially offsetting slowing demand from international visitors.
In line with this, domestic tourism will rise as state borders continue to open up, driving an increase in recreational product sales.
However, locations that are reliant on tourism such as the Gold Coast and Cairns will experience greater impacts as a result of the loss. Likewise, luxury retail will continue to feel the loss of international visitors.
Retail in 2021 will be heavily impacted by another year of low population growth, which will be 480,000 fewer over 2020-2022, leading to 200,000 fewer dwellings needed. $11.3 billion less is forecasted to be spent on retail as a result of this.
Compared to pre-COVID projections, there will be 72,000 less office workers, or 850,000sqm less net absorption.
As online sales in 2020 grew to levels not anticipated for an additional five years, the amount of physical retail space per capita is rapidly reducing, with the largest decline predicted to be from department stores.
Department store physical space is predicted to shrink by 2.6% annually up to the end of 2024, while homewares and home furnishing stores are forecasted to grown in floorspace by 2.5% annually to 2024.
Shopping centres could capitalise on the growth of e-commerce penetration by incorporating last mile facilities, in space that has become under-utilised or redundant.
Across the country the retail supply pipeline is tapering off, likely to limit the risk of oversupply and reduce the impact of population growth slowing. With almost 40% of new space added in the next five years projected to be refurbished space in existing centres.
Compared to the North American market, Australia has the advantage of having 46% of total retail space in shopping centres, with a lower shopping centre floorspace per capita compared to Canada and the US.
With Australia at 106sqm per person, while Canada reports 156sqm per person and in the US 215sqm per person.
During 2020, mid-range fashion retailers experienced the greatest number of insolvencies, this is expected to continue in 2021 as consumer demand changes.
Large format retail will continue to outperform in 2021, with spending on building materials and household goods being bolstered by increased residential construction due to the Homebuilder Grant.
Large format retail is also set to outperform as values bottom out in 2021, before seeing moderate increases.
The market outlook reinforces the resilience of mixed use hubs, with retail assets being future proofed by repurposing space to mixed use and to accommodate the rise in e-commerce penetration.
“Changing patterns of consumer demand will drive opportunities for investors, landlords and occupiers alike,” concluded Bailey.