Retailer demand remains opportunistic

• Retail trade in South Australia is trending downwards, negatively impacted by a higher interest rate environment dampening appetite for discretionary purchases.
• However, retailers remain opportunistic with a number of national fashion retailers securing high profile retail space along Adelaide’s CBD malls and regional enclosed centres over the last three months.

Greenfield residential development is driving supply

• The supply pipeline in Adelaide is expanding, driven largely by ongoing greenfield residential community development in the outer northern and Adelaide Hills suburban areas. Over the last six months, three new neighbourhood shopping centres have completed, adding around 12,800 sqm of consumer-staples-oriented retail space to stock.
• There is currently around 61,900 sqm of additional retail space currently under construction, one of the largest supply waves ever recorded in the Adelaide market.

Rents and yields are broadly stable

• Average rents across all sub-sectors were broadly stable over the quarter, with just CPI increases in outgoings. Retailer demand for space remains resilient in the early stages of the current economic downturn.
• Yields were unchanged over the quarter, buoyed by demand by local private capital with opportunistic acquisition strategies. However, it is expected that the yield decompression cycle that commenced in 2022 will persist over the balance of 2023.

Outlook: Decreasing consumer spending to increase vacancy risk

• Vacancy risk in enclosed centres with exposure to discretionary retailing is expected to increase over the medium term as consumer purchasing power decreases as a result of ongoing interest rate hikes.
• Investor demand for defensive retail assets like neighbourhood centres and stand-alone supermarkets is expected to increase over the next 12 months. The strong wave of neighbourhood centre supply anchoring new residential communities in Adelaide is expected to provide investors with some opportunity for potential off-market approaches to owners, which may, in turn, increase investment volumes.