Consumer sentiment likely to be affected by COVID-19 disruptions

• Queensland’s year-on-year retail turnover growth has fallen from 7.6% in October 2021 to 6.6% in November 2021. Turnover growth in the state remains above the national average (6.0% y-o-y) and is the fourth highest of all states behind Western Australia (8.7% y-o-y), Victoria (8.2% y-o-y) and the Northern Territory (7.0% y-o-y).
• Retail turnover has been driven by annual growth in cafes, restaurants and takeaway food (17.9%) and clothing, footwear and personal accessories (17.7%). The stability recorded across categories is reflective of the positive consumer sentiment prior to the spike in COVID-19 cases. A decrease in foot traffic and retail spending is likely to affect retail turnover from December 2021 into early 2022.

LFR and neighbourhood projects dominate supply pipeline

• Quarterly completions totalled 14,000 sqm across two projects. Burleigh Home and Life was the larger project to complete (8,700 sqm) and involved the delivery of a single-story homemaker centre. Capestone Boulevard Shopping Centre, a neighbourhood centre, was 88% pre-leased upon completion delivering 5,300 sqm of retail space.
• The supply pipeline remains moderate with 335,500 sqm of retail area set for delivery over the next three years. The pipeline is dominated by LFR (45%) and neighbourhood centre projects (24%). Remaining sub-sectors in the pipeline include ‘other’ retail (15%), CBD (12%) and sub-regional (3%) projects.

CBD and regional sub-sectors continue to record declining rents

• Gross rents across LFR, sub-regional and neighbourhood centre sub-sectors were effectively stable over the quarter. Prime CBD gross rents reported a significant decline of 5.00% while regional shopping centres reported a decline of 0.25%. This highlights the challenging leasing conditions for discretionary retail sub-sectors resulting from the uncertainty of higher COVID-19 cases.
• Yields across the sub-sectors remained stable with the exception of LFR and sub-regional centres which both tightened by 50 basis points at the upper and lower ends. This is reflective of the continued strong performance of the sub-sectors and counter-cyclical investor interest.

Outlook: Disruptions to retail expected from rising COVID-19 cases

• While the opening of Queensland’s international and domestic borders created a temporary positive outlook for tenants and landlords, rising COVID-19 cases in the state are likely to cause disruptions over the short term. Neighbourhood and LFR are likely to continue to outperform over the next twelve months.
• A broadening of investor interest for a range of asset types across LFR, neighbourhood, ‘other’ retail, sub-regional and regional sectors was recorded in 2021. Notably, however, the theme of renewed investor interest for larger retail assets is likely to continue over the next 12 months.