AUSTRALIAN ONLINE RETAIL SALES

Seasonally adjusted, monthly

During 2022, there were over $14.56 billion in retail assets which transacted across Australia, highlighting a strong confidence in this asset class by a range of private and institutional investors. Convenience and neighbourhood assets remain in high demand given this attraction to food, often anchored by a supermarket and home to supplementary specialty food retailers. Returns data from MSCI also suggests that sub-regional and neighbourhood centres have outperformed across both capital and income returns over the last year compared to larger major and super regional centres. Across the country, total returns for retail have averaged

6.8 per cent in 2022 ahead of office assets, due to consistent income returns despite limited capital appreciation.

While traditional food retailing continues to grow its share of retail trade, so too have cafes, restaurants and take away food services. However, this more discretionary food sector is expected to be hit due to the changing household balance sheet, given the increased interest rate environment. Another burgeoning discretionary sector has been that of luxury goods. There has been a strong uptick in luxury brands growing their retail footprint in Australia in major CBDs, growing suburban communities and tourism destinations. Anticipated robust tourism levels and the attractive Australian dollar for overseas visitors is likely to spur on this segment during a time where domestic discretionary spending levels out.

There is an expectation that pressure on yields will continue throughout 2023; high street retail yield movements are likely to be in response to the lease covenant, quality and location. With increased land tax attracted to many commercial assets this year, this is another pressure point for owners which may see greater distressed assets come to market which may also impact these rates. MSCI data highlights neighbourhood centres with their strong relationship with food are yet to show any yield growth remaining stable at 5.4 per cent, whereas larger assets have shown early signs of growth in capitalisation rates.

Therefore with the continued increase in interest rates the likelihood of further yields increases are high across all retail types. However those assets with leases tied to turnover (particularly food retailers) and rental increases aligned with CPI will still enjoy strong income returns and may sacrifice short term capital gains keeping yields reasonably competitive. As buyers continue to look towards these assets and our shopping trends still see us visiting these centres and stores, retail is far from dead but our expectations and experiences will continue to evolve.

Head of Research