CBRE has predicted 2015 will be a positive year for all sectors of large format retail, with buoyant housing activity in the past 18 months fuelling uplift in the retail environment and benefiting retailers.
On the back of falling fuel prices and low interest rates, prospects for 2015 remain positive with retail sales volume growth expected to be strongest in NSW and VIC according to CBRE’s latest Market Insights report. The report highlights a significant improvement in market conditions throughout 2014, with many retailers revitalising their expansion programs and investment sales of multi-tenanted centres achieving continued yield compression.
The buoyant level of consumer spending in 2014 was largely underpinned by sizeable activity in the housing sector. As a result of improved conditions, furniture retailers – whose expansion was largely dormant during 2013 – saw the largest shift, improving from 1% (average for 2012/13) to over 8% growth in 2014. Sales of household goods also reached a seven-year high in the December quarter of 2014.
Of the total new retail leasing transactions completed by CBRE across Australia in 2014, furniture retailers represented approximately 26%, over 10% more than the second highest retail group. CBRE Head of Large Format Retail, Chris Parry, said this resurgent growth in the past year had led to stability in large format retail sales turnover per square metre in addition to increased tenant demand.
“Adding to improved conditions on the demand side, three of the past five years have recorded supply levels less than half the annual average since 2000, so oversupply has become less of a concern than previously. This translated to prime rent growth of 2.6% nationally in 2014,” Mr Parry said.
The shortage in housing, particularly in NSW, WA and QLD saw a high level of dwelling approvals in 2014, and this is expected to continue as those states are still relatively undersupplied relative to their population size. “The continued strong residential construction activity will effectively drive higher consumer demand for large format retail products, underpinning the success of the large format retail sector,” Mr Parry said.
Lower interest rates and oil prices will further lift consumer confidence and consumption, which will benefit retailers and help support more favourable rental growth in the retail sector in 2015/16 according to CBRE’s Market Insights report. Cheaper oil prices would add $6bn in additional household spending capacity in 2015 if fuel prices remain at current levels, roughly 2% points of retail sales.
“Both a buoyant housing sector and improved consumer confidence will bode well for household goods sales,” Mr Parry said. Forecasts across Australia show the minimal vacancy rates for large format retail spaces are set to continue, resulting in potentially higher rents and increased construction of large format retail outlets to meet demand.
“As a result of recent growth in the market, CBRE has grown its Large Format Retail business platform across Australia, and we have welcomed an additional three operators to our business line,” Mr Parry said.
Image credit: ‘Large format retail’ by Scott Lewis under Creative Commons Attribution 2.0