Despite rising vacancy rates and falling rents, bricks-and-mortar retail stores have a strong future in Australia, commercial real estate group Colliers International has asserted in its latest market outlook report.
The group’s Retail Research and Forecast Report for the first half of 2019 shows only a handful of markets, including the busy Sydney and Melbourne CBDs, witnessed marginally higher rents, while vacancy rates increased in all the major capital cities, apart from Perth.
Compared with a year ago, yields have also softened across most capital city markets, indicating a reduction in real estate values, while incentives have continued to rise – a sign landlords are having to sweeten leasing deals to secure or retain tenants.
In addition, pressure is growing on major shopping centre landlords to reduce rents or lose tenants, while the likes of Vicinity Centres and Stockland have been selling underperforming shopping centres – sometimes at discounts to their book value – as they reshape their portfolios.
In its report, Colliers says bigger trends supported the long-term viability of bricks-and-mortar retail including the slowdown in the growth of online retails sales, a growing preference for consumers to research products online but shop instore, and the likes of Amazon and Alibaba adopting an omni-retail strategy by opening physical stores overseas.
“Amazon Australia also reported underwhelming results for its first full year of retail operation, with only $106 million in revenue in the financial year 2018. This equates to 0.58 per cent of the Australian online retail market and about 0.033 per cent of the overall retail market,” Colliers says.
The report also highlights that nine out of 10 of the most visited Australian shopping websites in 2018 were owned by traditional bricks-and-mortar retailers including Bunnings, JB Hi-Fi, Coles, Woolworths and Kmart, with Kogan.com the only pure online retailer among the mix.
“Retail spending online has slowed, and the fear of a bricks-and-mortar retail apocalypse has been largely over-exaggerated; retail sales through physical shopping channels still account for over 94 per cent of the total commerce activity in Australia,” said Michael Bate, head of retail at Colliers International.
According to the report, the Sydney CBD still commands the highest retail rents at $12,825 per square metre, followed by the Melbourne CBD at $7500 per sq m and the Brisbane CBD at $4250 per sq m.
Colliers International director of research Alex Pham said there were numerous case studies indicating that online and offline retailing in Australia were complementary.
“An overwhelming 78 per cent of Australian consumers are continuing to shop both online and offline,” Mr Pham said
“Major e-commerce retailers have also realised the tremendous benefit of having a physical presence and are making the leap from clicks to bricks, with Amazon being one example of this.”
Amid an influx of international brands into the major capital cities, the Colliers report shows that luxury retail sales rose more than 9 per cent a year over the past five years and growth was expected to exceed 7 per cent over the next five years.
“The rise of affluent travellers, particularly from the Asia-Pacific region, has provided significant support for the luxury retailing industry in Australia,” Mr Bate said.
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