Commercial & Retail Property Market Analysis
Waves of investors seek “pandemic-proof” retail BY KRISTY KERSWELL
Analysis of retail asset classes reveals that whilst the pandemic has significantly impacted all markets, not all asset classes have been impacted equally, with some benefitting from COVID-19. However, the upcoming cessation of government stimulus will pose a significant challenge to the retail sector as a whole.
Whilst the retail landscape has been significantly impacted by social distancing, customer density mandates and government lockdowns, the market is segmented, and it has become evident that not all asset classes have been impacted equally by the pandemic. There has been a significant overall reduction in the sales volume of retail assets during the pandemic, however despite this, we have witnessed significant spikes in sales of neighbourhood centres and hardware stores throughout 2020 (m3property, 2021). Whilst regional and sub-regional centres have been hit, supermarket anchored neighbourhood and large format centres have fared well. The m3property National Retail Report for 2020 revealed that retail investors showed a preference for major metropolitan centres with high population density, and that there was no demand for regional locations, which often have high levels of competition and major tenant backfill risk. Neighbourhood centres, supermarkets and warehouses have attracted the most investor attention, which is attributed to high amounts of income from non-discretionary, essential retailers (m3property, 2021).
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The impacts of COVID-19 have led to a divergence in the performance of discretionary and non-discretionary retail assets, and this has become apparent in leasing and sales metrics and investor behaviour. This points to a recent trend in investor behaviour towards property investments that involve lower levels of risk. As government stimulus begins to draw to a close, retailers are likely to be impacted and vacancy rates are expected to rise in the short to medium term. The most obvious risks to investors are retailers on short-term leases. It is important to note that even despite government stimulus efforts, retail vacancy rates in Australia increased from 4.80% to 6.90% throughout the pandemic. Concerningly, ASIC data suggests that government intervention has caused both personal and business insolvencies to decline below pre-pandemic levels, suggesting that the winding back of measures may result in an opening of the floodgates (ASIC, 2020 & 2021). The question on everyone’s minds is whether government relief measures have successfully avoided the economic impacts of the pandemic, or merely deferred them.
