Commercial Property: Should You Be Cautious
About Investing in the Retail Sector?

The Retail sector is very delicately balancedMany investors just simply fall in love with Retail property. And probably, because of familiarity — as it tends to influence so much of our daily lives.

Therefore, after investing in Residential property for a while, you find people will gravitate naturally towards Retail properly.

To them, it seems to be the next logical step. But is that actually the case?

Let’s talk about the Weather!

Surely, that only affects Rural property — doesn’t it? Well, just ask struggling retailers … and they’ll tell you otherwise.

You see, in the run-up to summer … clothing retailers will be holding their breath. Because any onset of wet weather will greatly affect the sale of thongs, board-shorts & bikinis. And Coca-Cola blamed the fall in its soft-drink sales, upon last summer’s heavy rains.

Retail Sales Growth has been trending downwardsInterestingly though, rain also tends to drive people indoors to regional shopping centres — but mostly to browse and eat, rather than buy specialty items.

Plus, cinemas will also benefit from poor weather conditions. Whereas, tourist and outdoor entertainment operators find the going tough.

What about Interest Rates?

The Residential sector will always suffer first (and the most), whenever interest rates are on the rise.

Because, as people need to spend more on their mortgage payments … they have less to spend on discretionary retail items. Particularly, when they also decided to boost their savings to near-record levels.

In this rising interest-rate sequence, Industrial property will tend to follow Retail — and begin to slow about 6 to 9 months afterwards.

This is because Australia’s industrial property is predominantly occupied by “distributors”, rather than manufacturers. And these distributors are mainly supplying those struggling retailers.

So that only leaves Offices!

According to an 80-year study by BIS Shrapnel, there appears to be little or no correlation between rising interest rates AND and the Office sector.

Therefore, the rise and fall for Offices is dictated by the prevailing supply and demand within the sector. And traditionally, that has tended to span a 16 to 18 year cycle.

Bottom Line: If you understand how to read the signs and can anticipate the cycles, you need not be caught out.

But clearly, the Retail sector is delicately poised at the moment. Whereas, Offices are currently heading along a predictable upward path.


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