APPD Market Report Article
SE QueenslandMay 31, 2022
Opening of borders improves sentiment among retailers
- Queensland’s year-on-year retail turnover growth has dropped from 5.3% in January 2022 to 4.9% in February 2022. Turnover growth in the state has now fallen below the national average (5.3% y-o-y). However, Queensland is the third highest of all states behind Western Australia (7.2%) and Victoria (9.0%).
- Retail turnover has been driven by annual growth in cafes, restaurants and takeaway food (18.2%) and clothing, footwear and personal accessories (16.8%). While a dint in consumer sentiment was brought on in January by the Omicron variant, an upward trend in foot traffic eventuated in February. The opening of international borders has also created positive sentiment among retailers.
Construction costs remain high with a slow delivery of projects
- No retail projects completed in the quarter. The completion of stage one of Queen Street Village in Southport (9,700 sqm), involving a four-storey shopping and entertainment centre, has been pushed out for a third time and is now due to complete in late May. There are currently eight projects under construction set to supply 91,800 sqm of retail space to SEQ over the course of the next two years.
- The supply pipeline remains moderate with 135,400 sqm of retail developments with plans approved and 92,100 sqm with plans submitted. This pipeline is dominated by LFR (39%) and neighbourhood centre projects (34%). Remaining sub-sectors in the pipeline include ‘other’ retail (18%) and sub-regional (8%) projects.
Convenience-based retail assets have strong appeal
- Gross rents for large format retail, neighbourhood, and sub-regional centres remained stable over the quarter. CBD rents recorded a continual steep decline of 5.0% while regional centres recorded a decline of 0.25% highlighting the challenging leasing conditions for these sub-sectors.
- Yields across regional and CBD sub-sectors remained unchanged over the quarter. Neighbourhood yields tightened most significantly over the quarter tightening on the upper end by 50 bps and 75 bps on the lower end. Large format retail centres tightened by 25 bps on both upper and lower ends while sub-regionals tightened by 25 bps on the upper end.
Outlook: Appetite is growing for major retail assets
- Moving on from COVID-19 with relaxed restrictions and the opening of international borders over the quarter, CBD retail is anticipated to improve over 2022 as office workers, tourists and students slowly begin to return to Queensland. Discretionary spending is posed to overtake the lockdown resilient non-discretionary spending going forward as consumers learn to live with the virus.
- Convenience-based retail assets will continue to be the most attractive subsectors to investors in the short term given their ability to provide resilient income streams. However, an improving appetite for major retail assets is set to continue going forward given the strength of economic recovery and the stabilisation of retail valuations.