APPD Market Report Article
SydneyDecember 1, 2021
Lockdowns continue to disrupt retail spending
- Non-essential retail stores have remained closed under the current extended lockdown in New South Wales. Retail leasing activity has slowed significantly with the state spending most of 3Q21 under these restrictions.
- New South Wales monthly retail spending has declined consistently since June 2021 as the state entered a period of extended lockdown restrictions. Spending in August 2021 was 11.8% lower than spending in August 2020 reflective of these restrictions. Department stores (-52.4%) and clothing, footwear and accessories (-48.9%) have seen the biggest fall in sales relative to last August.
Annual retail completions to remain below average in 2021
- A number of projects have been delayed with owners focusing on managing COVID-19 relief and cashflow which has reduced the number of projects anticipated to complete in 2021 and 2022. Three new assets completed in 3Q21 including Ed. Square (25,000 sqm), Rhodes Central (11,500 sqm) and Woolworths Kirrawee (4,500 sqm).
- The latest vacancy survey as of June 2021 shows that the retail vacancy rate (all sub sectors) increased marginally by 0.1 percentage points to 5.6%. The vacancy rate has remained largely stable over the past 12 months.
Yields compressed across multiple sub-sectors
- Despite the recent lockdown, the investment market remains competitive with multiple retail sub-sectors recording yield compression over 3Q21. The sub-regional median yield compressed 19 bps while both the neighbourhood and LFR midpoint yields compressed 38 bps. Regional yields remained stable with this segment of the market relatively less liquid due to scale.
- Gross rents declined across CBD (-5.00% q-o-q), regional (-1.00% q-o-q) and neighbourhood (-0.25%) assets over 3Q21. Large format retail and sub-regional rents remained stable.
Outlook: Income uncertainty is the greatest challenge for landlords
- NSW’s lockdown restrictions are set to significantly ease from early October which will allow most retailers to open with social distancing policies and capacity limits in place. Some rebound in leasing activity is anticipated however the retail sector is likely to remain challenged by store rationalisation by major retail groups.
- Local investment volumes are likely to continue to be driven by the strong global rebound in sentiment and investment appetite across capital markets in the short term.