PerthDecember 1, 2021
WA retail turnover growth continues to outperform national average
- WA recorded annual spending growth of 10.9% in August 2021, significantly above the national average of 7.1%. The clothing, footwear and accessories category recorded the strongest performance of all categories, with growth of 20.9% y-o-y in August 2021, while spending at cafes, restaurants and takeaway was the second strongest performer (up 17.6% y-o-y).
- Anecdotal evidence suggests foot traffic has increased but remains below pre-COVID-19 levels, particularly for CBD assets. Store closures, increasing number of voluntary administrations 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 strong
- Completions (≥1,000 sqm) in 3Q21 totalled 57,800 sqm across two projects. There is a further 24,700 sqm of projects currently under construction and due to complete by 3Q23.
- There is a strong supply pipeline beyond projects already underway. A further eight projects have plans approved, totalling 87,100 sqm. There are four projects on hold with development approval (152,300 sqm), awaiting significant improvement in retail conditions before proceeding.
Rents remain under pressure due to increased vacancy risk
- Average rents continued to decline across most sub-sectors over 3Q21. Over the last 12 months, rents have declined as tough market conditions persist and landlords attempt to combat elevated vacancy levels. Incentives continue to lead rent negotiations across most sub-sectors.
- Yields were stable across regional, sub-regional and CBD sub-sectors in 3Q21. However, yields compressed in the neighbourhood (-25 bps) and large format retail (-25 bps) sub-sectors due to strong investor appetite for defensive retail assets.
Outlook: Further rental declines and elevated vacancies forecast
- Elevated vacancies and retailer store rationalisation plans will place further downward pressure on rents.
- The theme of risk aversion in retail is likely to prevail over the next 12 months, with a strong focus on non-discretionary retail assets, large format retail and long WALE retail assets.