Consumers Emerge Victorious From Retail Wars

Colliers International’s latest Research and Forecast Report found that the consumer is set to benefit the most in the Australian retail sector.

Disruption has driven down prices and retailers now focus their efforts on customer experience and service.

“The Australian retail sector is undergoing immense change and disruption, forcing retailers and landlords to refine their strategies and align better to consumer preferences,” Colliers International Research Director Daniel Lees said.

“New platforms such as Amazon Marketplace will provide more depth to the current online offering available to Australian consumers, while also delivering end to end online sales infrastructure that was previously out of reach for many small to medium-sized domestic retailers.

“The Australian consumer remains quite healthy, which explains why so many offshore retailers have been executing entry strategies over the past few years.

"We have a high income population which is concentrated within a relatively small number of capital cities and that population is growing. Internet penetration is also high, and many Australians are well travelled with a strong appetite to adopt global brands and fashion.”

The wealth effect delivered through the housing market created a strong spending environment, and the range of products available means consumers have never been more tempted to purchase.

While the battle between online and stores will affect Australian retail, Colliers believes that Australia is equipped to integrate disruptors into society, unlike the US which has seen major store and mall closures.

“Compared to their American counterparts, Australian landlords realise that they cannot compete with online retail on price alone and have therefore invested heavily in experiences and place making to create an experience for consumers available exclusively in-store,” Colliers International Head of Retail Michael Bate said.

“Australian landlords are also exceptionally good at developing an engaging tenancy mix and creating environments where retailers can reach optimal performance.

“We’re now starting to see some of the best tenancy mixes we’ve ever seen in Australia.

"Landlords are seeing new opportunities to capture shopper attention with increased food and beverage options and providing unique in-store and in-centre experiences," he said.

Although retail sales figures have been trending lower over the past three years, much of this can be explained through supermarket wars, turnaround strategies within department stores and corporate failures within the household goods sector.

Sentiment levels have been resilient in the wake of several recent geopolitical events and the composition of the labour market has been improving in recent data releases. Price increases of major items such as food and fuel have also been subdued.

From an investment perspective, retail remains an attractive asset class, with transaction volumes only restricted by market stock levels.
Sydney CBD
According to Colliers, the average Sydney CBD gross face rents are forecast to increase to 1.9% to $10,966 per square metre by the first quarter of 2018. Sydney CBD retail floor space supply will peak at almost 80,000 square metres in 2020 due to the refurbishment of Harbourside Shopping Centre.

The Sydney CBD office market is in the midst of a significant development phase that commenced with Barangaroo in 2015 and will continue out to 2021 and beyond with projects from Brookfield, AMP and Lendlease. As these projects reach completion, it is clear that the standard of retail on offer is being improved, with Sydney consumers reaping the rewards in the form of laneway activation, new brands and more sophisticated dining experiences.
Melbourne CBD
In Melbourne, offshore purchaser interest continues to strengthen, with tenant demand for central locations driving up prime face rents with limited prime grade support volumes. Changing demands of the consumer in the fashion world has seen a shift particularly in choice towards casual sportswear.

The rise in popularity of active wear has not only put pressure on retailers to create a segment of sport apparel but struck as a game changer in the footwear industry.

Brisbane CBD
In Brisbane, prime grade high street retail gross face rents head northward, placing the Brisbane CBD as the third most expensive region across Australia. Improved business conditions, strong population growth and record tourism numbers are assisting retail trade turnover across the South East. Strong population growth along with increased tourism numbers is driving rents in Brisbane’s CBD and assisting retail trade within the city’s centre.
Adelaide
South Australia has seen sustained growth in retail sales, with vacancy on Rundle Mall falling. Sales activity is primarily driven by private investors. Retail sales have primarily been driven by strong growth in Café and restaurants, Food and other retail categories.
Perth
Major centres in Perth are undertaking works to reposition assets, with CBD rents adjusting as demand softens. Over the next decade Perth’s retail sectors landscape could look distinctly different than it does today. The creation of ‘destination’ complexes by larger shopping centres poses significant risks to less significant centres.