2019 will be a transitional year for the retail sector. Assets will be transferred between owners with different risk profiles and return requirements as groups with large portfolios reset and rationalise their asset base. Owners will be looking to re-invest into existing assets to extract value and bolster returns. Buyers will take advantage of the relative value emerging in the retail sector given the pricing adjustment that has already occurred. A range of opportunistic investors are reviewing strategies for retail acquisitions in 2019. Change in the retail industry is driving greater liquidity in the investment market given the need to more proactively manage assets and portfolios. Opportunities will emerge for investors to acquire major retail assets, which historically have not been accessible.
Head of Retail Investments - Australia
A confluence of factors will influence consumer sentiment in 2019 and shape the retail spending environment. The Reserve Bank of Australia has maintained a positive outlook for the Australian economy with GDP growth of 3.25% in 2019 and 3.0% in 2020. Labour markets remain relatively firm with ABS reporting that total employment was just shy of 12.7 million people in November 2018 – an all-time record high for the Australian economy.
However, a number of headwinds will impact consumer sentiment. House prices will remain under downward pressure in Sydney and Melbourne, uncertainty in the global economy will create volatility in equity markets and the upcoming Federal Election will generate a degree of caution amongst households.
Overall, we expect that retail turnover growth will be slightly below trend in 2019. Proactive shopping centre owners have built business plans on a lower retail spending environment. Creating a diverse tenancy mix which appeals to the primary trade area will be important to maintain occupancy and income levels.
Head of Research - Australia
2018 is likely to have been the high point for values in this cycle with some record low yields having been achieved. However, the market has reached an inflection point where some assets are now selling for below book value. Net income remains under pressure in many centres as a result of rental reversions and negative lease spreads which is weighing on capital values. High quality retail assets will be more resilient but not immune to changes in market conditions. Consumer sentiment is softening due to decreasing house prices, low wages growth and elevated household debt, with investor sentiment being impacted by subdued growth in domestic retail sales. We are increasingly seeing more conservative assumptions being applied in terms of expected growth, vacancy, letting up periods and incentives.
Head of Retail Valuations & Advisory - Australia
Management intensity of retail assets continues to increase, driven by changes in retailer business models and their approach to real estate. The value of retail asset management advice has never been higher – whether it’s in regards to the effectiveness of new technology, marketing initiatives, leasing strategies or retailer requirements. Our focus is on managing risks and achieving cost efficiencies for our clients to create value and drive returns. Centre Managers are focusing on ways to optimise the tenancy mix which is suitable to the local catchment. We are seeing less fashion more food and services in shopping centres and focusing on creating superior experiences. We are working closely with our clients to find solutions that work best for them as a business in the context of a changing retail landscape.