The Valuers' View - Retail

July, 2020

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A survey of m3property Valuers

The Valuer’s View

In times of uncertainty where transactions are limited and new trends establishing, industry participants place even more reliance on Valuers to provide market guidance.

To assist lenders, investors and owners, the Valuers at m3property have contributed their opinions on the current state of the property markets and where they expect those markets to head over the next 12 months.

This is the third report in a series of papers on the major sectors of the Australian property market and focuses on Retail Centres.

Key Retail Sector Insights

  • Centres with a high proportion of non-discretionary retailers are likely to fare better over COVID-19.
  • Soft leasing conditions are expected to result in rents reducing and incentives rising over the short- to medium-term.
  • Assets subject to high vacancy, short WALE, poor location or requiring significant capital expenditure will experience a greater decrease in value with investors taking a conservative approach to risk.

Value Comparison, by sector


Shaun O'Sullivan


View Profile > VIC
Casey Robinson

National Research Specialist

View Profile > QLD

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Stages of the COVID-19 recession

The COVID-19 crisis is likely to have three distinct stages:

Survey Results

“With JobKeeper, increased JobSeeker and protection from Insolvency Trading laws winding up in September, the financial viability of some retail businesses will be tested, which will put continued pressure on centre cash flow through increased vacancy.”

Shaun O’Sullivan
Director Retail


  • Yield softening will depend on the Centre quality, category, location and tenancy profile.
  • Prime Centres or Centres which are largely food or non-discretionary based are unlikely to see the same level of softening as Centres with a higher proportion of discretionary services.
  • Neighbourhood Centres in metropolitan areas with long leases are likely to see stable yields. Secondary assets across all categories will soften due to weaker economic conditions and a flight-to-quality by investors. The flight-to-quality will assist in maintaining values of prime assets in all categories.


  • IRRs will naturally be impacted as a result of lower rental growth and reduced MAT growth for some major tenants.
  • Going forward, if a greater percentage of leases are structured on a percentage rental basis, this will also have a negative impact on IRRs, reflecting the increased risk in future cash flows.


  • Rent reductions will occur for tenancies which were towards the upper end of market rental or occupancy cost ranges. There will also be downward pressure on market rents for tenancies impacted by COVID-19, restricted retail trading conditions and for non-discretionary retailers.
  • There will be a move towards leases being struck with lower annual review methods, which will be more reflective of turnover growth forecasts. Various retailers will continue to push for rents which comprise a greater proportion of turnover rent.


  • Incentives will increase, particularly in the short-term, reflecting soft leasing conditions. There is likely to be a requirement for tenants to receive rent-free and cash contributions in order to commence leases in a difficult trading environment
  • While incentives may increase for some Centres, according to discussions with Centre Owners and Centre Managers there is likely to be a correction in rents, rather than any paradigm shift in incentives.


  • Any shift in value will be contingent on the strength of the Centre, its tenants and whether any further outbreaks of COVID-19 emerge.
  • Values for metropolitan Neighbourhood assets with a focus on non-discretionary spending will see minimal decreases. Assets with increased vacancy, short WALEs, secondary locations or requiring significant capital investment will experience a greater decrease in value with investors continuing to take a conservative approach with investment strategies.