APPD Market Report Article
AdelaideDecember 1, 2021
Retail trade is normalising
- South Australian retail spending grew 5.0% y-o-y to August 2021 after peaking at 9.4% in April 2021. Spending in discretionary retail categories like fashion (28.2% y-o-y) and dining out (8.2%) is trending upwards or holding firm. However, spending in the take-home food category (1.6% y-o-y) is trending downwards after strong growth in late 2020 and early 2021.
- Retail leasing demand remains opportunistic, with national operators looking to secure space in better performing regional and sub-regional centres if attractive lease terms can be achieved. Supermarket anchored neighbourhood and sub-regional centres continue to attract service-oriented occupiers like allied health and social services.
Supply is low with two projects currently under construction
- Supply is low with only two mixed-use projects with ground floor retail components (7,200 sqm) currently under construction. However, new greenfield residential development has resulted in a new 4,400 sqm neighbourhood retail centre expected to commence construction before the end of the year. Springwood Place in the outer northern suburbs is forecast to complete by 4Q22.
- Vacancy rate movements were mixed in 2Q21. There were decreases in the large format retail (-1.7% q-o-q), regional (-0.8% q-o-q), and sub-regional (-0.7% q-o-q) sub-sector vacancy rates. Conversely, vacancy rates in the CBD and neighbourhood sub-sectors have increased by 2.9% and 0.3% q-o-q, respectively.
Yields compress across multiple sub-sectors
- Rental movement across Adelaide’s retail sub-sectors was mixed in 3Q21. Average rents in sub-sectors with exposure to discretionary retailing categories (CBD, regional, subregional centres) decreased by 0.25% over the quarter. Conversely, improving occupier demand in the neighbourhood and LFR subsectors resulted in a 0.25% increase.
- Ongoing investor demand for supermarket-anchored neighbourhood centres and well-leased large-format retail (LFR) centres resulted in yield compression in the quarter. Average midpoint yields in the neighbourhood subsector compressed 25 bps to 6.13%. Average midpoint yields in the LFR subsector compressed 13 bps to 7.25%. Yields in all other sub-sectors were unchanged.
Outlook: Ongoing discretionary spending growth should improve occupancy
- While retail trade is normalising from a period of strong spending growth, consumer allocation to discretionary categories like fashion, cafes and restaurants should reinforce retailer confidence. Shopping centres are likely to improve experiential retail offerings to encourage visitation.
- Investors continue to look at retail opportunistically, evidenced by the two sub-regional assets transacted in 3Q21. Appetite for defensive assets like neighbourhood and LFR centres is likely to increase off-market approaches to owners as investors hunt for opportunities.