APPD Market Report Article
SE QueenslandAugust 26, 2022
Andrew Quillfeldt, Senior Director - Research, Australia
Inflation to drive growth in retail turnover
- Queensland’s year-on-year retail turnover growth has remained relatively stable throughout 2022, marginally increasing from 5.0% in April 2022 to 5.4% in May 2022. Turnover growth in the state is relatively in line with the national average (5.1%). Queensland has the third highest retail turnover growth nationally, behind Victoria (9.0%) and Western Australia (6.6%) for the month of May.
- Retail turnover growth was primarily driven by annual growth in ‘other retail’ (i.e. recreational goods, pharmaceuticals) of 9.2%, as well as cafes, restaurants and takeaway food which recorded a growth of 9.5%. Retail turnover growth over the medium-term is anticipated to be driven by price rather than volume, given the current inflationary pressures.
Construction costs remain high with slow delivery of projects
- Significant weather impacts, rising construction costs and labour shortages have caused delays to many projects in South-East Queensland. However several previously delayed projects have reached practical completion in 2Q22, including Queen Street Village in Southport (9,686 sqm).
- There are currently eight projects under construction totalling 100,900 sqm of retail space, which are due for completion by 2024. There is a further 145,400 sqm of retail developments with plans approved and 60,600 sqm with plans submitted. This pipeline is dominated by single-tenant and multi-tenant large format retail (40%) and neighbourhood centre projects (26%).
Neighbourhood assets dominate sale transactions
- Gross rents across all subsectors remained stable over 2Q22. Rents are forecasted to gradually recover in the CBD as enquiry and lease deals accelerate due to an anticipated increase in foot traffic from rising tourist numbers and workers returning to the office in the medium-term.
- Yields across all retail sub-sectors remained stable, except for prime CBD. The yield tightened by 25 bps on the lower end as a result of the sale of 171 Edward Street, which transacted at a yield of 4.75%. The asset was purchased by Singapore retailer, Hourglass, in line with their strategy of owning properties at prime locations in selected cities.
Outlook: Economic uncertainty slows the investment market
- Convenience-based retail, a defensive asset class, will likely continue to attract a diverse range of capital sources seeking to increase their exposure to the sector in the near-term. However, headwinds instigated by an increasingly volatile economic environment is anticipated to drive caution among investors. Yields are likely to soften across subsectors in the near-term.
- Overall, retail spending is expected to slow in the near-term despite resilience over the past few months, amid economic uncertainty and rising interest rates.