PerthMay 31, 2022
WA retail turnover growth continues to outperform national average
- Spending at cafes, restaurants and takeaways recorded the strongest performance of all categories, with growth of 22.0% (y-o-y) in February 2021, while the clothing, footwear and accessories category was the second strongest performer (up 21.6% y-o-y).
- Anecdotal evidence suggests foot traffic has increased but remains below pre-COVID-19 levels, particularly for CBD assets. Store closures, mask mandates and growing trends in employee workplace flexibility (working from home) continues to place pressure on vacancies and rental growth prospects.
Despite tough retail conditions, supply pipeline remains elevated
- No significant completions (≥1,000 sqm) were recorded during 1Q22. Over the last 12 months, completions totalled 69,000 sqm, below the 10-year average of 78,500 sqm. There is a further 38,600 sqm of projects currently under construction and due to complete by 3Q22.
- There is a strong supply pipeline beyond projects already underway. A further seven projects have plans approved, totalling 89,300 sqm. There are four projects on hold with development approval (111,300 sqm), awaiting significant improvement in retail conditions before proceeding.
CBD Rents remain under pressure due to increased vacancy risk
- Average rents continued to decline across the CBD sub-sector over 1Q22 as tough market conditions persist and landlords attempt to combat elevated vacancy levels. All other sub-sectors recorded marginal increases in quarterly rents. Anecdotally, it has been reported that incentives continue to lead rent negotiations across most sub-sectors.
- Yields were stable across regional, sub-regional, neighbourhood and CBD sub-sectors in 1Q22. However, yields compressed in the large format retail (-25 bps) sub-sector over the quarter.
Outlook: Further rental declines and elevated vacancies forecast
- Elevated vacancies and retailer store rationalisation plans will place further downward pressure on rents.
- The recent reopening of the WA border is expected to benefit the retail market, with an increased pool of investors looking to capitalise on investment opportunities. Investment demand is expected to be attracted towards the defensive nature of supermarket anchored neighbourhood centres, while sub-regional and regional centres may draw counter-cyclical investors.