Retail property sentiment back at GFC levels: ANZ

Retailers battling the slowest rate of retail spending growth in almost 30 years and declining retail margins due to competition from online sellers are seeing lower retail rents as one way to reduce operating costs, ANZ said.

Amid these bleak operating conditions, ANZ economists and report authors Adelaide Timbrell and David Plank said the gap between declining retail building approvals and rising total retail profits (due to rising population growth, not increasing profit margins) was reminiscent of “GFC conditions”.

“Negative sentiment in the retail sector is higher then usual by comparison to total growth in the industry,” Ms Timbrell told The Australian Financial Review.

“Investors have a low risk appetite and building new retail space is a risk. There is caution beyond the level of the current slowdown,” she said.

Adding to the gloom in retail property Ms Timbrell highlighted the “very negative sentiment” towards retail property capital values, based on a recent ANZ-Property Council of Australia survey.

In the major CBDs, only Melbourne and Sydney landlords are generating marginal growth (below 2 per cent) in speciality store rents. In Adelaide, Perth and south-east Queensland rents are going backwards.

In shopping centres, where speciality stores account for more than 40 per cent of total rental income, annual rental growth has fallen to zero for mid-sized sub-regional malls and to less than 0.5 per cent for the bigger regional centres.

Outlook slightly better
The ANZ report follows property research house BIS Oxford Economics warning that annual rental income growth was expected to barely keep pace with inflation over the next decade. Mall owner Vicinity Centres reported negative total leasing spreads and a decline in comparable net property income growth in its latest results.

The outlook is slightly better. ANZ anticipates a pick-up in retail sales in the second half of the year as taxpayers get lump sum refunds following cuts to personal income tax rates.

“We don’t expect another year as weak as last [financial] year, but we also don’t expect the retail market to go back to what it was before the GFC,” Ms Timbrell said.

“The last five to six years there has been only modest growth and we expect the market to return to modest growth.”

According to ANZ, the limited retail development that is taking place is skewed toward supermarket-anchored neighbourhood centres, the major shopping centres and CBD precincts.

Among the worst performing retail property markets is the Perth CBD, where the vacancy rate has risen to 17 per cent.