Australian Shopping Centre Overview

April, 2018

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Landlords continue to alter their retail mix to include more food, beverage and entertainment; health and beauty; and other service provider retailers.

Market Overview

The retail sector continues to face challenges such as changing consumer preferences, weak consumer sentiment, technological changes and rising bond rates.  Low interest rates have kept purchaser demand positive, but with rising bond rates investment markets are considered near their peak.

The m3property Shopping Centre report focuses on retailer and investment activity in Regional, Sub Regional and Neighbourhood centres in Australia.

Shopping centre tenant demand drivers have shown mixed results over recent years with sentiment being volatile and largely weak, online retail expanding, wages growth being low and residential construction varying widely between regions. On the positive side, population growth has improved since the end of 2015 and employment growth has been strong. Overall the outcome has been a slight slowdown in retail trade. Retail conditions are expected to be challenging in most states over the short-term, with outcomes relying on population growth, employment levels, wages growth and combating future issues, such as online competition and new entrants into the market.

The government is introducing a 10% tariff on clothing, electronics and furniture under $1,000 in value purchased online from overseas retailers from July 1, 2018, aimed at equalling the playing field. In practice, additional governance may be required to ensure a positive impact on local retailers.

Rental growth in specialty stores of A-REIT owned centres was 4.1% over the year to December 2017, this was an improvement in growth compared to the previous 12 months. Consequently gross occupancy costs rose slightly to 14.4% in December 2017, from 14.1% as at December 2016.

Investment demand was positive with the volume of sales increasing over the year to March 2018 compared to the year prior in Regional and Neighbourhood centres, compared to the year prior. Sub Regional centres saw activity reduce over the same period.

Yields for shopping centres reported across the major retail A-REITs firmed by 27 basis points over the year to December 2017 to average 5.66%.

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