Are We Now Finally Seeing a Retail Revival?

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A RECENT ARTICLE in the Financial Review (11 January, page 32) summarised the influx of overseas retailers, who are about to launch new stores within Australia this year.

The key locations being: Melbourne (18), Sydney (10), Brisbane (8) and Perth (4).

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In addition to these, Microsoft also has a flagship store plan for Melbourne this year. Plus Samsung will open a new store in Melbourne Central; and Apple is searching for where to house its first exclusive store, within the Melbourne CBD.

Has Retail turned the corner?

With all this activity and interest from overseas retailers, you would have thought so. And consumers will clearly be delighted with the added variety to choose from.

Moreover, the CBD landlords around Australia will be rubbing their hands together -- benefiting from rental increases of up to 30%, due to the added competition for prime locations.

However, most of you are not major CBD landlords. Nor are you likely to be attracting these overseas retailers as tenants.

As a retail investor, your market would most likely be suburban "strip" shops -- with a local trader as your tenant.

How will Local Traders fair?

Anyone who has been reading the newspapers will realise local traders (both large and small) seem to have been in "sale mode" since the GFC in 2008.

Therefore, compared to their glory days, and retailers have been doing it tough.

And yet, many leases have contained automatic rental increases of 3% to 4% per annum. This means, they are being squeezed at both ends -- with revenues lower, and costs increasing.

As you can appreciate, this is not an ideal recipe for remaining profitable. And it has already being reflected in higher vacancy rates, within many of the suburban strip shopping areas around Australia.

But that's not all ...

In addition, six of the country's major regional shopping centres are about to add a further 260,000 sq metres of retail space to the existing footprints.

Clearly, this will dilate the traffic available to the traditional suburban strip centres. And can only serve to further weaken their revenue prospects, over the next few years.

Bottom Line: The added competition from these international retailers and regional shopping centres will direct consumer demand away from existing local traders -- who also have to contend with unwanted cost increases.

Therefore, as a commercial property investor, you need to be wary of the continued fragility of the local retail market. And not allow yourself to be seduced by all the hype surrounding the current overseas invasion.

 

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