WA retail turnover growth remains elevated

• WA retail spending recorded growth of 8.5% (y-o-y) in October 2022 versus 8.0% in July 2022, indicating an increase in spending from three months prior. Spending at cafes, restaurants and takeaways recorded the strongest performance of all categories, with growth of 14.3% (y-o-y) in October 2022, while other retail spending was the second strongest performer (up 14.0% y-o-y).
• Despite the overall CBD retail vacancy rate increasing by 0.1 percentage points (ppts) to 20.7% in 2H22, foot traffic has improved from six months prior. The latest Property Council of Australia (PCA) office occupancy survey revealed that office occupancy in Perth CBD reached 80.0% of pre-COVID-19 levels in November 2022, the strongest of all Australian capital cities.

Confirmed supply pipeline remains soft

• Only two significant completions (≥1,000 sqm) were recorded during 4Q22 totalling 20,800 sqm. Over the last 12 months, completions totalled 35,300 sqm, below the 10-year average of 83,800 sqm. There is a further 35,300 sqm of projects currently under construction and due to complete by mid-2023.
• In addition to projects already under construction, there are five projects with plans approved totalling 46,500 sqm and four projects on hold totalling 111,300 sqm. However, rising construction costs, ongoing labour shortages and broader softening in global economic conditions may pose hurdles for new project commencements.

Mild increase in rents across all sub-sectors

• Average rents recorded marginal increases across all sub-sectors during 4Q22. Despite the quarterly increase, CBD rents have generally trended lower since 2018 as tough market conditions persist, and landlords attempt to combat elevated vacancy levels.
• Investment volumes strengthened over 4Q22, totalling AUD 169.3 million across two transactions. Despite the quarterly increase, annual investment volumes totalled AUD 411.7 million; below the 10-year average of AUD 628.6 million.

Outlook: Retail spending growth expected to moderate

• The current high inflationary environment and expectations of further increases in the cash rate may lead to a moderation in retail spending patterns moving forward.
• Investment demand is expected to be attracted towards the defensive nature of supermarket-anchored neighbourhood centres, while sub-regional and regional centres may draw counter-cyclical investors.