The Insight | Perth Retail Strips - December 2023 | RWC WA

The Insight Perth Retail Strips

RWC WA | December 2023

Perth retail strips

SCARBOROUGH BEACH RD, MOUNT LAWLEY

ROKEBY RD, SUBIACO

BEAUFORT ST, MOUNT LAWLEY

ALBANY HWY, VIC PARK & EAST VIC PARK

BAY VIEW TCE, CLAREMONT

NAPOLEON ST, COTTESLOE

SOUTH TCE, FREMANTLE

Introduction

The Perth retail strip market has enjoyed improvement in overall occupancy over the five strips we have surveyed in the past five years. We have added a further three retail strips to this edition.

Throughout 2023, the Western Australian economy experienced a blend of challenges and opportunities, significantly impacting the retail industry and subsequently influencing the retail property market. The sector faced a dynamic landscape shaped by factors such as shifting consumer behaviours, and the aftermath of the COVID-19 pandemic. Improvements in employment fuelled strong increases in the residential market after a prolonged period of treading water for some Perth markets. Growth in residential sales volumes, increased confidence all driving retail trade particularly in the food and homeware sectors.

WA had an increase in interstate buyers purchasing commercial investments during a time of robust economic conditions. With interest rate rises moderating, local private investors and owner occupiers now dominate the investment landscape albeit the volume of transactions is currently subdued. Despite the increased cost of funding, savvy buyers are still capitalising on opportunities across retail, particularly in these strips which have a proven track record of high occupancy. While there has been some change in yield expectation over the last 6-12 months sales average in the 5% to 6% range.

It’s still an interesting time for retail in this environment, while online sales have grown in recent times notably in response to COVID-19 many of our strips buck the trend and still perform well in the digital environment. Inflation figures as well as the projected cash rate decreases will be key indicators impacting the success of our retail strips over the next 12 months.

Vacancy by retail strip

There has been some volatility in our recent retail survey results with individual markets recording mixed results. However, it is encouraging to see that the overall total average vacancy rate has continued to decline for the third year. Across all eight locations we have surveyed 568 shop fronts which represents over 81,000sqm, vacancy was found at 8.12%. This is an improvement from last year’s survey results of 9.63%, however those figures only included the original 5 survey strips and didn’t take into account Scarborough Beach Road, Albany Highway and South Terrace. Considering only the previously five surveyed strips the vacancy still reduced to 8.83% on the previous year which is a positive sign for the retail markets going forward.

Overall, we have seen some movement in the make up of our retail strips in response to changing behaviours in which the population interact with retail, notably after the pandemic period. Some markets however buck the national trends with both Bay View Terrace and Napoleon Street indicative of “fashion strips” which are limited across the country. Our other markets also have various levels take up of food and services which have been growth segments of retail trade in recent years. For those markets with higher vacancies, we expect to see an increase in these categories, while these are growth areas for retail, they improve local vibrancy as they require in person custom.

Bay View Terrace, Claremont

Retail vacancy (sqm)

Bay View Terrace has seen an increase in occupancy levels compared to last year. Recording vacancy of 5.37% which is down from 7.23% in the previous assessment year. This market is home to five vacant shops. This market managed throughout the pandemic with a high occupancy rate given the changing dynamics of the neighbourhood retail market. With staff working from home, we saw a return to patronage of the local high street and there was an increase in tenancies which required an in-person experience such as services during a time where online trade increased. Over the past 5 years the median house price has increased 31.4% with the current median house price sitting at $2.07 million. This has done much to bolster confidence and encourage increased retail expenditure notably on discretionary goods bucking the trend during a time of rising interest rates and uncertainties across the globe. Demand for investment assets too were ramped up during the rising interest rate environment during 2022/23 resulting in softening of yields, currently assets in this location are achieving yields in the 6-8% range.

Retail mix

The Bay View Terrace strip has a retail mix not seen often in Australian retail strip markets. Most markets have seen a move away from the clothing & soft goods sector in a retail strip environment with these retailers moving to high online sales models with physical stores in larger centres which form part of a broader shopping experience. This region has 27.30% of all retail space devoted to this tenant type with a strong weighting to women’s footwear and fashion, in recent times we have also seen the uptick in services now represented by 18.06% of all space following the theme of beauty, optical as well as more traditional services such as Australia Post and real estate agencies etc. The limited food retailing in this location an area to watch, with a growing appetite for customers for either dine-in/take away options and specialised food venues.

Napoleon Street, Cottesloe

Retail vacancy (sqm)

Napoleon Street recorded no change to its vacancy levels over the past assessment year. With vacancy at just 5.42%, this represented only two vacant shops for the second year in a row, which was expected in this tightly held tenanted market. The long-term lows in vacancies in this market are illustrative of the affluent local catchment. Demand to occupy space in this strip has always been at a high rate due to the higher than state average disposable income which has been further fuelled by rapid growth in the local housing market. With median house prices now eclipsing $3.3million and over 60% growth recorded over the past five years, this retail catchment has not recorded a slowdown in retail expenditure. Despite some softening in the residential market and higher interest rates, we do not expect this to significantly hinder local demand for Cottesloe retail.

Retail mix

Again, bucking the broader retail strip trends across the country, this market has close to a third of all retail space devoted to the clothing & soft goods sector. The local market responding well to its reputation as a high street fashion strip, attracting visitors from outside the area who are looking for options and services different to shopping centre clothing stores. For this market Café’s do make up a larger segment again capitalising on both local and visiting customers to the area, this representing 21.37%. Another large segment of the market being Other personal & household goods driven by jewellery as an extension to the clothing segment. Services in this market only represented 9.11% accounting for beauty and real estate services.

Rokeby Road, Subacio

Retail vacancy (sqm)

The Subiaco market has had a lot of movement over the last few years, developments in the area and changes in sentiment towards the region has seen volatility in the retail strip landscape. Unfortunately, there has been a decrease in activity over the last twelve months, with vacancy now recorded at 13.43% up from last year’s figure of 10.86%. This market has been hindered by a variety of impacts with COVID-19 also doing much to hamper recovery. Despite this, demand to invest in this location has not dampened, a number of small commercial spaces have transacted over the last year indicative of the growing business count across the country. Owner occupiers have sought out quality, local accommodation for new, small businesses as well as an alternative working from home solution. Strong gains in both house and unit values in the area over the past few years also bolstering confidence across this local property market.

Retail mix

We continue to see the evolution of Rokeby Road; clothing now represents shy of 11% which is a vast change to a few years ago where this was far more prevalent. Despite this the other personal & household goods sector continues to represent close to quarter of all space, highlighting the continued discretionary spend levels in this location. The growth in the residential market also aiding this segment as well as the furniture, housewares & appliances which is higher than most other locations. Food continues to be a growing segment for this location which aligns with the local demographic with both specialised food and cafes representing close to a quarter of all stock. Services have remained steady; banks continue to be a major tenant along the strip along with medical and beauty services.

Oxford Street, Leederville

Retail vacancy (sqm)

The Leederville strip had no change in vacancy over the past year remaining steady at 13.12%. While this does only represent 5 shopfronts including the large mid strip vacancy, which makes up 457m², there continues to be buzz in this location given the night-time activity relating to food tenancies and importantly the completion of the ABN building and hundreds of workers moving into the precinct. Over the last year there has been limited investment activity in the strip. With rising interest rates, buyer activity in the market is beginning to increase with yields softening from the previous year.

Retail mix

We continue to see the decline in clothing and soft goods, reducing its space use across the strip in each of our vacancy counts. Growing each year has been the café & restaurant segment now over 45% taking advantage of the local workforce and after work crowd. The confidence in this retail strip is echoed in the national chains which now have a tenancy in the strip, looking to capitalise on discretionary food retailing. Similarly, we see the specialised food segment also increase which is a mix of take away offerings as well as specific cooking products or grocery items which are on offer for the high day time population. Surprisingly, services remain a limited portion of the strip at just over 4% highlighting this location as being a “foodie” driven strip.

Beaufort St, Mount Lawley

Retail vacancy (sqm)

Beaufort Street is our largest strip in our retail count, and it has continued to improve. This year only 11 vacancies have been recorded down from over 20 just three years ago representing a vacancy of 9.63%. This market felt the effects of COVID-19 with shutdowns and restricted trade resulting in a number of local businesses closing their doors. Some improvement in local office activity has been a feature for this market bringing more custom along the strip during the day, however the vast mix in this location is unlike many others making it a location not necessarily associated with any one use like the other strips in our retail count. Services started to see some increase which is what we have seen in most strips across the country, instrumental in getting customers into store, given the threat of online retail to most other retail segments. Few transactions were recorded this past year across the strip with a notable sale being that of 560 Beaufort Street, brokered by RWC WA. This illustrates that demand for quality, tenanted assets in this location continues to be in good demand.

Retail mix

The mixed strip of Beaufort Street continues to see a decline in cafes & restaurant space, bucking the trend seen across many other regions capitalising on the continued increase in food retailing. Clothing & soft goods has again reduced its footprint, the threat of online sales seeing this trend across other locations. Services continues to be prevalent particularly in the beauty/hairdressing space which is instrumental in bringing customers to the strip. The uptick in the housing sector has seen this region grow its median house price by 7.7% over the last five years, bringing the current median dwelling price to over $1.3million which has resulted in confidence when it comes to retail expenditure. Furniture, housewares, appliances, recreational goods as well as personal and household goods all growing their share along the strip as people look to continue to invest in their prized home asset.

Scarborough Beach Road, Mount Hawthorn

Retail vacancy (sqm)

Scarborough Beach Road is one of the three new editions to our retail strip survey. In this first assessment only two vacancies have been recorded representing a vacancy rate of just 2.38%, boasting the lowest vacancy of all of the strips examined. This suburb like most, was also impacted by the effects of COVID-19 with shutdowns and restricted trade resulting in the closure of a number of businesses. However, this sector seems to have bounced back quite positively as indicated by the current low vacancy rate. The limited vacancies that have come onto the market over the past year were typically immediately replaced by new businesses. A prominent feature of this strip consists of many health, beauty and hair tenancies, as well as female fashion stores.

Retail mix

The retail strip of Scarborough Beach Road depicts a large portion of tenancies within the cafes & restaurant space, amounting to over 30% of total uptake. Services was prevalent particularly in the beauty/hairdressing space which is instrumental in bringing customers to the strip, amounting to a total share of 34.83%. The wider suburb saw an increase in the housing sector which has seen this region grow its median house price by 38.3% over the last five years with the median dwelling price currently at $1.2million which has flowed through in the form of consumer confidence.

Albany Highway, Vic Park & East Vic Park

Retail vacancy (sqm)

The Albany Highway strip is one of the three new editions to our retail strip survey. In this first assessment only nine vacancies have been recorded over a total of 216 shops representing a combined vacancy rate of just 5.78% over both of the suburbs. This market felt the effects of COVID-19 with shutdowns and restricted trade resulting in a number of local businesses closing their doors. However, the improvements in this sector have been quite positive, with the market rebounding strongly and remaining vibrant and busy. Vacancies that do arise are typically taken up within a short span of time along this strip. A prominent feature of this strip consists of many cafes and restaurants particularly Asian food options and bubble tea shops.

Retail mix

The strip of Albany Highway depicts a large portion of tenancies within the cafes & restaurant and clothing and soft goods sectors accounting for 32.40% and 23.91% respectively. The wider suburbs of Victoria Park and East Victoria Park saw an increase in the housing sector which has seen these suburbs grow their median house prices by 25.8% and 27.5% over the last five years respectively

South Terrace, Fremantle

Retail vacancy (sqm)

The South Terrace strip is one of the three new editions to our retail strip survey. This year only 6 vacancies have been recorded over a total of 34 shops however, this still represented a vacancy rate of 25.66%, which reflects the highest vacancy over all of the assessed retail strips. This market was particularly impacted by the effects of COVID-19 with shutdowns and restricted trade resulting in a number of local businesses closing their doors. The recovery in this sector has been slow which is depicted through the high vacancy of shopfronts. However, many key projects are in the development pipeline which are set to revitalise Fremantle. These include a redevelopment of the Fremantle Oval precinct, a redevelopment of Victoria Quay, an expansion of the Fremantle fishing boat harbour and various high-density residential developments most notably on Queen Victoria Street. All of these will in turn likely lead to a greater uptake

of these shopfronts. Further to this, the South Terrace dining strip is still well-renowned attracting customers from all over the metropolitan area, therefore there is only room for improvements in this area.

Retail mix

The retail strip of South Terrace depicts a large portion of tenancies within the cafes & restaurant space, amounting to over 27.14% of total uptake, with many renowned eateries being located in this area and surrounds. Interestingly, only 4.33% of the space was taken up by pubs, taverns and bars. Services accounted for the greatest sector with a 29.67% share of the space. The suburb had an increase in the housing sector which has seen this region grow its median house price by 40.1% over the last five years with the median dwelling price ticking over $1.1million.

RWC WA

Ground floor, 12-14 The Esplanade, Perth WA 6000

raywhitecommercialwa.com

Brett Wilkins

Director of Capital Markets

0478 611 168

brett.wilkins@raywhite.com