APPD Market Report Article

Perth

February 28, 2022

-3.5%

AUD 1,760

Decline
Slowing

WA retail turnover growth continues to outperform national average

  • WA recorded annual spending growth of 9.4% in October 2021, significantly above the national average of 6.6%. The clothing, footwear and accessories category recorded the strongest performance of all categories, with growth of 20.2% y-o-y in October 2021, while spending at cafes, restaurants and takeaways was the second strongest performer (up 18.2% 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 4Q21 totalled 6,200 sqm across one project. Over the last 12 months, completions totalled 73,900 sqm, below the 10-year average of 86,600 sqm. There is a further 28,500 sqm of projects currently under construction and due to complete by 3Q22.
  • There is a strong supply pipeline beyond projects already underway. A further nine projects have plans approved, totalling 103,400 sqm. There are three projects on hold with development approval (104,500 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 4Q21. 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, neighbourhood and CBD sub-sectors in 4Q21. However, yields compressed in the sub-regional (-25 bps) and large format retail (-50 bps) sub-sectors over the quarter.

Outlook: Further rental declines and elevated vacancies forecast

  • The defensive characteristics of the retail sub-sectors of convenience (neighbourhood) and large format retail is expected to continue to attract capital with potential for yield compression for well-located centres.
  • Elevated vacancies and retailer store rationalisation plans will place further downward pressure on rents.

Note: Perth Retail refers to Perth's overall retail market.

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