RETAIL First Half 2020 - Research & Forecast Report - Colliers International
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Research &
Forecast Report
Accelerating success.
RETAIL
First Half 2020
Accelerating success.
MAXIMISE THE
POTENTIAL OF
DATA
IN-DEPTH DATA At the forefront of the
real estate industry, we
Granular datasets covering historical
understand the demand
and forecast data with over 2,000
datapoints updated quarterly. for reliable and accurate
data is more prevalent
than ever.
Our enterprising
technology, Colliers Edge,
offers comprehensive
DETAILED property data that enables
TRANSACTIONS you to delve deeper into
the Australian property
Individual reporting of
market, using data to
major transactions.
become more informed
and deliver enduring value.
Colliers Edge is a data
subscription service
developed by our in-
INSIGHTS house research experts,
Our experienced research team who collaborate with
will help you understand quarterly our National network
changes, as well as broader themes of operators to drive
behind each sector and market. exceptional results.
Joanne Henderson
Director | Research
+61 410 391 093
joanne.henderson@colliers.com
colliers.com.au/colliersedge
CONTENTS
Economic Overview 4
State and Federal Stimulus Measures 5
Retail Snapshot 8
The Consumer 13
The Retailer 14
The Landlord 15
The Future of Retail 16
Our Expertise 18
Accelerating success.
RETAIL | Research & Forecast Report | H1 2020
ECONOMIC The Code of Conduct
To assist landlords and tenants to negotiate the new COVID-19
OVERVIEW landscape the Federal government released a Code of Conduct which
is a set of principles on which landlords and tenants can negotiate.
Commercial tenancies are governed by the states, so legislation
By Kate Gray was required at the state level to enact this, and there are slight
Director | Research differences across states as to the application of these principles. To
kate.gray@colliers.com be covered by the code businesses need to have an annual turnover
The retailing world has been turned upside-down as a result of of A$50 million or below and have seen a reduction in turnover of
the spread of COVID-19 and the shutdowns required to contain 30% (i.e. be applicable for JobKeeper). The release on the 3rd of
the spread. The speed and scope of changes required have been April outlines these principles which are:
breathtaking with conditions changing daily during the last couple
• Where it can, rent should continue to be pre-paid, and where
of weeks of March. The pace of change and announcements has
there is financial distress as a result of COVID-19 (ie tenant
slowed somewhat, however there is still a long road ahead to get
eligible for JobKeeper programme) tenants and landlords
the economy and the retail sector back on track. In this report we
should negotiate a mutually agreed outcome
will investigate the changes we have seen and then what this means
• There will be proportionality to rent reductions based on
for the consumer, the retailer and the landlord. All face significant
the decline in turnover to ensure that the burden is shared
change and some challenges in the COVIDSafe economy.
between landlord and tenant
Australia was one of the first countries to move to close international • prohibition on termination of leases for non-payment of rent
borders. Arrivals from China were denied entry from February 1st (lockouts and evictions)
with further bans for both Italy and South Korea then followed by • freeze on rent increases (except turnover leases)
a total ban in international travel both arrivals and departures. All • prohibition on penalties for tenants who stop trading or reduce
states except Victoria and New South Wales have enforced state opening hours
border closures and strict 14-day quarantine for any arrivals. This • prohibition on landlords passing land tax to tenants
has halted any international or interstate tourism and the expenditure • prohibition on landlords charging interest on unpaid rent
that would come as a result. International students have been unable • prohibition on landlords from making a claim on a bank
to return to Australia to commence their studies, which has impacted guarantee for non-payment of rent
retail in areas with high international student numbers. • Ensure that any legislative barriers or administrative hurdles
to lease extensions are removed (ie so a tenant and landlord
Along with travel bans, on 23rd March, the Federal government
could agree a rent waiver in return for a lease extension).
required the closure of:
We recently undertook a retail landlord survey to better understand
• Pubs and registered licenced venues the impacts of the shutdown on landlords and how the code was
• Gyms and indoor sporting venues being applied by landlords. What we found was:
• Cinemas, entertainment venues casinos and nightclubs
• 70% of landlords have 60% or less of their tenants trading
• Restaurants and cafes are restricted to takeaway or delivery
• 70% landlords expect vacancy will increase over the next 12
only
months
Religious gatherings, festivals and sporting fixtures were also
• 72% of landlords have reported that 45% or more of their
mandated to cease. Office workers were encouraged to work from
tenants have applied for rent relief
home however other retailers were not mandated to close. There
• 49% of tenants have asked for rent holidays (over shutdown
was also a ban on any groups larger than two, however some states
or to extend beyond shutdown)
had groups no larger than ten. These restrictions remained in place
• 50% of landlords have offered a mixture of rent holiday and
until the ignition of the three stage process to unwind the shutdown -
deferral
details of which are outlined later in this report.
• 73% of landlords expect rents to fall in the next 12 months
As part of the shutdown, the federal and state governments have • 79% of landlords expect values to fall between 0-20%
announced a range of stimulus packages, with the largest being • Hardest hit sectors are Café/Restaurants and Beauty Services,
JobKeeper which is expected to reach A$70 billion and is the but apparel has also been significantly affected
largest stimulus package in Australian history. This is combined • Rental growth and pricing valuation benchmarks are the
with measures from the Reserve Bank and banking sector as well biggest challenges for the retail sector over the next 12 months
as changes to the review criteria for the Foreign Investment Review
Board. The code of conduct for commercial tenancies has been
released by the Federal government to provide a framework for
retailers and landlords to work within during the pandemic period.
We have provided a comprehensive outline of these measures and
packages within this report.
4
RETAIL | Research & Forecast Report | H1 2020
STATE AND Government Stimulus
FEDERAL
1st Federal Government Stimulus Package
• Cash payments to households – with a A$750 one off payment
to pensioners and Newstart
STIMULUS
• Business asset instant write offs up to A$150,000 (until 30th
June)
MEASURES
• Business investment accelerated depreciation
• Boosting cashflow for small to medium business up to A$25k
per business
• Wage subsidies for small business to keep on apprentices
By Kate Gray
Director | Research 2nd Federal Government Stimulus Package
kate.gray@colliers.com
• Aimed at boosting cash flow for employers for small and
On 2nd April the federal government announced that childcare will
medium business (under A$50m) up to A$100,000 with
be free with no means testing during the pandemic period and will
a minimum of A$20,000 – this is improved from the first
replace the current means test system. This is expected to revert to
package
the existing system later this year.
• The payment is 100% of salary and wages with a minimum
Changes to industrial relation awards to allow for: of A$10,000 up to A$50,000 – additional payment for July –
October period. This is tax free and automatically calculated by
• Two weeks unpaid pandemic leave if required to self isolate
the ATO provided they meet the eligibility criteria.
• Ability to have double the leave at half pay
• 50% wage subsidy for apprentice or trainee wage paid from
• Three Awards covering hospitality, restaurants and clerks
1st Jan – 30th Sept 2020 up to A$21,000
awards will be able to work remotely
• Coronavirus SME Guarantee – providing a 50% government
• Able to take longer leave at reduced pay
guarantee on new loans with A$20 billion allocated. Starting
On 22nd March, Tasmania, Western Australia, Northern Territory and
1st April these are to be used for working capital purposes,
South Australia announced border closures. The exceptions include
with no lender’s fees and free repayments for 6 months.
health care workers, compassionate grounds and freight. These
Maximum to borrow is A$250,000 on a term of three years.
were effective as of Tuesday 24th March and require any entrant
• Coronavirus supplement payment - A$550 per fortnight for
to quarantine for 14 days which was effective immediately. On
income support recipients (both existing and new recipients).
24th March , Queensland followed other states announcing border
This includes NewStart, youth allowance, parenting payment,
closures effective from Thursday 26th March and with entrants
farm household allowance and special benefit.
requiring to quarantine for 14 days.
• Additional one-off payment of A$750 for welfare recipients
On 29th March federal government announced no public gatherings (not available if you have received the Coronavirus supplement
over two (except those in a household). People can only go out for payment)
medical appointments, to buy essential items and for exercise. • Allow individuals in financial stress to limited access to
On 30th March, the Foreign Investment Review Board (FIRB) superannuation up to A$10,000 tax free with no impact
announced that all foreign investment will need to be reviewed on welfare payments. This is restricted to those that are
unemployed, welfare recipient, made redundant, working hours
On 30th March the Australian Banking Association announced: reduced by more than 20% or sole trade where business is
• Business loan facilities of up to A$10 million (up from A$3m) suspended, or turnover has fallen by more than 20%.
can defer payments for up to 6 months • Temporary 50% reduction in minimum drawdown rates of
• Banks will not enforce business loans for non-financial superannuation for 2019/20 to 2020/21.
breaches of loan contracts • Sole traders and self-employed able to access Coronavirus
• The new measures will apply in all sectors of the economy on and JobSeeker payments and can access superannuation as
an opt in basis per above.
• For commercial property landlords, they provide an 3rd Federal Government Stimulus Package
undertaking to the bank that for the period of the interest
On 30th March the federal government made an announcement for a
capitalisation, they will not terminate leases or evict current
JobKeeper Coronavirus Supplement;
tenants for rent arrears as a result of COVID-19
• The customer has advised that its business is affected by • This is applicable to businesses which have seen revenues fall
COVID-19 by more than 30% as a result of COVID-19, or for businesses
• The customer was current in terms of existing facilities 90 above A$1 billion revenues fall by 50%
days prior to applying • Will pay Australian employees A$1500 per fortnight (70%
• Interest is capitalised – meaning either the term of the loan is of median wage per employee) at a flat rate which includes
extended or payments are increased after the deferral period. casual staff who have worked for the same employer for 12
5
RETAIL | Research & Forecast Report | H1 2020
months registration for inbound tourists.
• Payments will commence 1st May but be backdated to 30th • Low-interest loan facility for Queensland businesses - A$500
March million low interest loans up to A$250,000 with interest free
• Workers stood down from 1st March are eligible for the period of 12 months, co-ordinated by QLD Rural and Industry
supplement Development Authority
• The supplement is being delivered by the Australian Tax Office • Diversification grants - A$500,000 package for business in
• This package is forecast to cost $70 billion, down from $130 Agriculture, food & fish exporting and supply chains to help
billion and is expected to cover 3.5 million workers. diversify with a focus on those that have been impacted by
Reserve Bank & Banks and Funding the Coronavirus. Opens in April with grants between A$2,500
to A$50,000 and includes evaluation studies, potential new
• Cut cash rate to 0.25%
markets or new equipment required for diversification.
• Started a programme of quantitative easing to a 3 year bond
• Also A$17 million (both state, federal and private) has been
rate of 0.25%
given to the University of Queensland to fast track a vaccine
• Providing term funding facility for banks to support lending for
for Coronavirus.
business (to lower the cost of funds)
South Australia
• Banks have access to A$90 billion of funding at a rate of
0.25% - substantially below current funding costs • A$350 million stimulus to bring forward infrastructure
• RBA is providing liquidity to the banking system spending
• Providing liquidity to the government bond market • Specific sector support with a focus on tourism infrastructure
• Establishing an exchange swap line to support US dollar • Expanded economic and business growth fund to support local
funding industry
• Banks can access short term funding (3% of outstanding Western Australia
credit) at 0.25% to ease funding costs up to March 2021. This
• One off grant of A$17,500 to payroll tax paying businesses
eases the need to source expensive capital offshore
with payroll between A$1-4 million
• Banks have announced they will defer payments for 6 months
• Payroll tax threshold brought forward to 1st July 2020.
for business and households with limited criteria
• SMEs effected by coronavirus can now apply to defer payroll
• Most banks have cut business loans rates significantly
tax obligations
State Stimulus Australian Capital Territory
New South Wales • On 20th March ACT government announced A$137 million
• Payroll Tax Wavier – on payrolls up to A$10million until end of stimulus
financial year, with payroll tax cuts brought forward • A one-off six month waiver on payroll tax for affected
• Waiving fees and charges for small businesses industries;
• A$500 million allocated to bring forward capital works and • Deferral of payroll tax for 12 months for businesses that pay
maintenance up to A$10m in wages;
• A$250 million of additional maintenance on public assets – • A$750 rebates to small businesses through their next
social housing and crown land fencing electricity bill;
• Economic forecasts are moving rapidly – in most cases daily • A$20m in funding for simple infrastructure works on public
as increased levels of lockdown are being enforced both buildings;
globally and domestically • rental support of A$250 for all public housing tenants, as well
as a one-off rebate for residential utility concession holders of
Victoria
A$200; and
• A$500 million Business Support fund – assist business with • a freeze on a number of ACT Government fees and charges,
payroll refund for payroll under A$3 million including the fire and emergency services levy, public
• A$500 million hardship payments to be distributed through transport, vehicle registration and parking fees.
chamber of commerce & industry, Australian Hotels
association, the Australian Industry group and other industries
• Waiver of Fees up to A$600million such as liquor licencing
• Rent relief for tenants in government buildings
Queensland
• Payroll tax relief for payrolls under A$6.5 million and have
been directly or indirectly impacted by the Coronavirus – i.e.
falling sales/profit, bookings or contracts compared to normal
conditions
• Fees waived – including liquor licencing, commercial activity
permits, marina charges, tourism rental payments and
6
RETAIL | Research & Forecast Report | H1 2020
Payroll and Wages Series Job & Wages losses between 14 March and 2 May
The Australian Bureau of Statistics has commenced a new payroll by Industry
and wages series which is based on the one touch payroll data Other services
-10.3%
which is submitted to the Australian Tax Office. Job losses were Arts and recreation services
-19 .0%
-7.5% (equivalent to approx. 1 million jobs) from 14th March to 18th Health care and social assistance
-1.0%
April with wages falling by 8.2% in the same period. Education and training
-1.8%
Public administration and safety
-1.7%
Retail Trade Administrative and support services
-9 .2%
Professional, scientific and technical services
-11.1%
The Australian Bureau of Statistics have released numbers for Retail
Rental, hiring and real estate services
-12.8%
sales for April, and after a significant spike in sales in March due to
Financial and insurance services
0.6%
panic buying, sales fell by 17.9% month-on-month compared to a fall
Information media and telecommunications
-9 .2%
of 9.2% over the same period last year.
Transport, postal and warehousing
-6.7%
Food retailing increased 24.1 percent in March, followed by a 17.1 Accommodation and food services
-27.1%
percent fall in April 2020. Cafes and Restaurants, Clothing and Retail trade
-6.0%
Footwear and Personal Accessories saw strong falls in April. Wholesale trade
-8.7%
Clothing, Footwear and Personal Accessories saw sales about half Construction
-6.5 %
the level of April 2019. Electricity, gas, water and waste services
-1.6%
Manufacturing
-7.0%
Online sales also grew significantly with 10% of all online sales being
Mining
-6.0%
purchased online. This has seen a significant increase in online
Agriculture, forestry and fishing
-7.4%
market penetration. As stores commence reopening, we do not
-30% -25% -20% -15% -10% -5% 0% 5% 10%
expect that this level of market penetration will be sustained.
Wages 14 Mar Payroll Jobs -14 Mar
Source: ABS
Alpha beta and Illion real time tracking show spending is starting to
return towards normal spending, however spending is still 4 percent
Job & Wages Losses between 14 March and 2 May
below normal levels. Essential spending increased during the crisis by State
and is now getting close to normal levels. Discretionary spending
ACT
fell dramatically through April, but has shown signs of improvement
NT
through May, but is still below normal levels.
Tas.
WA
SA
Qld.
Vic.
NSW
Australia
-9% -8% -7% -6% -5% -4% -3% -2% -1% 0%
Total wages Payroll jobs
Source: ABS
Job & Wages Losses between 14 March and 18 April
by Age
Aged 70+
Aged 60-69
Aged 50-59
Aged 40-49
Aged 30-39
Aged 20-29
Aged under 20
-20% -15% -10% -5% 0% 5% 10% 15% 20%
Total wages Payroll jobs
Source: ABS
7
RETAIL | Research & Forecast Report | H1 2020
CBD
RETAIL SNAPSHOT
Brisbane
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $1,500 $7,000 4.75% 6.00% 16%
Sydney
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $2,750 $22,900 3.90% 5.50% 10%
Adelaide Melbourne
Gross Face Gross Face
Yield (%) Incentive Yield (%) Incentive
Rent (A$/sqm p.a.) Rent (A$/sqm p.a.)
Low High Low High (%) Low High Low High (%)
H1 2020 (Q1) $2,000 $3,750 4.75% 6.00% 15% H1 2020 (Q1) $4,000 $11,000 4.10% 5.50% 8%
Perth
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $2,100 $4,165 4.75% 5.50% 15%
CBD Retail - Total Sales Volume Q1 2020
39%
SA
VIC
61%
55 Market Street, NSW Source: Colliers Edge
Leased on behalf of Mirvac and CIC.
8
RETAIL | Research & Forecast Report | H1 2020
REGIONAL SHOPPING
CENTRE
RETAIL SNAPSHOT
Brisbane
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $1,425 $1,575 4.25% 5.75% 18%
Sydney
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $1,600 $2,200 4.13% 5.50% 16%
Adelaide Melbourne
Gross Face Gross Face
Yield (%) Incentive Yield (%) Incentive
Rent (A$/sqm p.a.) Rent (A$/sqm p.a.)
Low High Low High (%) Low High Low High (%)
H1 2020 (Q1) $1,000 $1,800 5.25% 6.25% 21% H1 2020 (Q1) $1,500 $1,950 3.75% 5.50% 12%
Perth
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $700 $1,225 5.25% 6.00% 21%
Garden City Booragoon, WA Westfield Marion, SA
Valued on behalf of AMP Capital. Sold on behalf of our valued client Lendlease (APPF).
9
RETAIL | Research & Forecast Report | H1 2020
SUB-REGIONAL SHOPPING
CENTRE
RETAIL SNAPSHOT
Brisbane
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $750 $1,1300 5.50% 7.50% 25%
Sydney
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $850 $1,500 5.50% 7.50% 25%
Adelaide Melbourne
Gross Face Gross Face
Yield (%) Incentive Yield (%) Incentive
Rent (A$/sqm p.a.) Rent (A$/sqm p.a.)
Low High Low High (%) Low High Low High (%)
H1 2020 (Q1) $500 $850 6.00% 8.25% 25% H1 2020 (Q1) $810 $1,200 5.50% 7.25% 16%
Perth
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $525 $1,025 6.00% 7.25% 15%
Sub-Regional Retail - Total Sales Volume Q1 2020
28%
QLD
WA
72%
Queen & Albert, QLD Source: Colliers Edge
Sold on behalf of our valued client Queensland Investment Corporation.
10RETAIL | Research & Forecast Report | H1 2020
NEIGHBOURHOOD
SHOPPING CENTRE
RETAIL SNAPSHOT
Brisbane
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $541 $821 5.75% 7.50% 26%
Sydney
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $850 $1,050 5.50% 7.25% 17%
Adelaide Melbourne
Gross Face Gross Face
Yield (%) Incentive Yield (%) Incentive
Rent (A$/sqm p.a.) Rent (A$/sqm p.a.)
Low High Low High (%) Low High Low High (%)
H1 2020 (Q1) $350 $700 6.50% 7.75% 20% H1 2020 (Q1) $550 $850 5.25% 7.00% 18%
Perth
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $360 $540 5.75% 7.25% 20%
Neighbourhood Retail - Total Sales Volume Q1 2020
4%
5%
QLD
9%
VIC
SA
56%
26% NSW
WA
Cranbourne West Shopping Centre, VIC Source: Colliers Edge
Managed on behalf of Woolworths.
11RETAIL | Research & Forecast Report | H1 2020
LARGE FORMAT RETAIL
SHOPPING CENTRE
RETAIL SNAPSHOT
Brisbane
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $282 $360 7.25% 8.25% 17%
Sydney
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $225 $750 5.50% 7.00% 8%
Adelaide Melbourne
Gross Face Gross Face
Yield (%) Incentive Yield (%) Incentive
Rent (A$/sqm p.a.) Rent (A$/sqm p.a.)
Low High Low High (%) Low High Low High (%)
H1 2020 (Q1) $175 $300 7.25% 8.25% 15% H1 2020 (Q1) $195 $360 6.50% 7.50% 11%
Perth
Gross Face Yield (%) Incentive
Rent (A$/sqm p.a.)
Low High Low High (%)
H1 2020 (Q1) $195 $250 6.85% 7.75% 13%
Large Format Retail - Total Sales Volume Q1 2020
48% VIC
52% WA
300 Parramatta Road, NSW Source: Colliers Edge
Sold on behalf of our valued client Altis Property Partners.
12RETAIL | Research & Forecast Report | H1 2020
THE
CONSUMER
By Kate Gray
Director | Research
kate.gray@colliers.com
Whilst it goes without saying that COVID-19 has impacted where This will force many retailers to re-evaluate their online systems and
and how consumers spend their money, the lasting effects of the infrastructure and even store network.
pandemic will undoubtedly shift consumer behaviour over the
For the most part, we know that Gen Y and Gen Z are relatively
medium to long term. In the midst of an unprecedented time in
comfortable shopping online. This pandemic has forced a large
the retail landscape (and every other landscape for that matter),
group of Baby Boomers and Gen X’s to step outside their comfort
consumers, much like business owners and operators, have been
zone and utilise e-commerce. The COVID-19 pandemic has certainly
forced to adapt.
accelerated the market penetration of the e-commerce sector with
With 2.7 million individual Australian’s affected by job losses or recent surveys indicating that approximately 20 per cent of growth
reduced hours, an initial level of frugality was expected, with has been driven by users who have never made an online purchase
consumer spending decreasing drastically. Through March, panic before. Post coronavirus, consumers will be a lot more tech-savvy
buying of staple items such as toilet paper, pasta, rice, hand and confident, fast-forwarding the rise of online retail as it continues
sanitiser, flour and cleaning products resulted in shortages and to achieve unprecedented levels of penetration in the marketplace.
buying limits on some items. This took some weeks to subside, The ability for businesses to acknowledge this and compliment their
but by end of April supermarket shelves are now consistently fully physical and online stores to create a frictionless and convenient
stocked. Discretionary spend and consumer confidence both fell experience for the consumer will be pivotal.
substantially in March, but have started to show some signs that they
While it’s evident that Australia has done an incredible job in
are returning to ‘normal’ during May. Over the second half of April
containing the spread of COVID-19 which has subsequently resulted
and the first two weeks of May, households have increased their
in a slow easing of restrictions, many Australians will still be
rate of expenditure with particular emphasis on food and alcohol,
apprehensive over the short to medium term which is evident in
home improvements and furniture. Gym equipment, electrical and
consumer confidence. Discretionary spending has decelerated, and
office furniture and supplies improved as gyms were shut and
the recovery is expected to be slow with 1 in 5 Australian households
office workers moved to work from home. In contrast, discretionary
under financial stress. In positive news, consumer sentiment and
spending on gym/fitness, travel and entertainment continues to
business conditions have shown some signs of recovery, correlating
struggle.
to the Federal Government’s ‘roadmap to recovery’ and state
With restrictions starting to be lifted, shopping centres reported government’s beginning to ease restrictions.
an increase in traffic numbers and some retailers reporting sales
An initial easing of restrictions has resulted in a spike in expenditure
which could exceed the prior year. The anticipation of a second
as many attempt to scratch that retail itch after a long couple of
wave of infections throughout the winter months, combined with
months in isolation. This should balance out (without hitting pre-
less hours worked and higher job losses are expected to put the
virus levels) as households continue to monitor their finances more
reigns on discretionary retail spending. Traditional strip retail and
prudently. The way Australians spend their money may change too;
neighbourhood centres have performed well with Woolworths
if flexible working arrangements become the norm, expenditure
reporting smaller metro centres were seeing higher sales compared
on work attire would decrease. If international travel is restricted,
to supermarkets in major malls. Takeaway food, beverages and
spending on domestic tourism and possibly camping and outdoor
ready-made meals have all seen significant growth as restaurants
equipment could increase.
and cafes have had to pivot to a takeaway only model.
Despite the challenges that still lay ahead, we know that Australian’s
Over the course of the last two months, many Australian’s have been
are resilient and resourceful. Businesses will be forced to show
forced to acclimatise to online shopping. Despite the preference of
similar traits; adapting to the changing preferences of consumers,
face-to-face social interaction at a bricks and mortar retail outlet,
with many forced to enhance up their online presence, develop click
the convenience of shopping online may just begin to permanently
and collect options and undertake all possible safety precautions in
capture a portion of the market it otherwise wouldn’t have pre
store.
COVID-19. In April, online shopping was up approximately 20 percent
compared to the same time last year. Australian consumers typically
prefer in-store shopping more than almost any other country in the
world. However, the rapid uptake of online shopping is likely to see
shopping habits change for a vast number of Australian consumers.
13RETAIL | Research & Forecast Report | H1 2020
THE
RETAILER
By Kate Gray
Director | Research
kate.gray@colliers.com
The retailing world post pandemic looks quite different to the retail Department store sales have struggled for some time. Harris Scarfe
world prior to 23rd March when lockdown was enforced. There are was placed into administration early in the year with the group
some segments which will be far more resilient in the face of this restructuring and closing stores and then sold to the Spotlight
crisis and others that are going to find conditions challenging in a Group. Myer decided to close all their stores and stand down most
COVIDSafe world. of their staff during the pandemic, although not required to. The only
trade was from their online stores, with fulfilment of these orders
Spending patterns have been significantly disrupted as a result
being conducted in 26 of their stores. A staged opening of some
of COVID-19 which we have outlined in the consumer section.
of their stores will commence from the 16th of May. David Jones
Supermarkets are booming. As the pandemic restrictions were put in
have continued to trade through the pandemic period however on-
place sales jumped (up 22% in March) which was a result of panic
counter beauty services, lingerie fittings and dine in services were
buying. This led to purchasing limits for certain items including toilet
suspended. David Jones South African parent company reported
paper, cleaning products, hand sanitiser, canned goods, flour, pasta
that they are expecting at least a 20% drop in full year earnings with
and rice. Both Coles and Woolworths have set-up pop-up distribution
both David Jones and Country Road expected to see significant falls
centres to assist in dealing with the surge in demand.
in sales.
Delivery and click and collect orders were halted as the supermarket
Apparel is probably one of the most interesting sectors through this
chains tried to cope with overwhelming demand. This resulted
shutdown. Although these retailers were not mandated to shut, a
in significant expansion of their casual workforce to help cope.
significant proportion decided to close. Our analysis showed that
Woolworths offered stood down Qantas staff casual work to help
retailers which have not been mandated to close but did, 77% of
them through the stand down period. Even despite this suspension
them were fashion retailers. This accounted for over 7,200 fashion
there was an increase in online sales for both supermarket chains
stores closed which is approximately 1 million square metres of retail
with Woolworths seeing a 26% increase in sales and online
space. Within the apparel sector, footwear is the hardest hit.
penetration jump from 3.7% up to 4.1%. Both supermarkets chains
have worked to increase their capacity to service both delivery and Supply chains have also seen significant disruption. The 'Just in time’
click and collect services. Woolworths have offered a community works well when supply chains are operating efficiently, however
collection where a friend or family member can collect an order on in times of disruption the supply chain collapses which is causing
behalf of a vulnerable person. In partnership with Australia Post and stock shortages and delays in delivery. As the economy has started
DHL, Woolworths are offering a basic box to vulnerable customers in to open, we are seeing supply shortages and delays in delivery for
ACT, NSW and VIC which provides meals, snacks and some essential some retailers due to various issues. This pandemic may give pause
items for A$80. To assist with the increase in demand Woolworths for retailers to reassess their supply chains and probably diversify
have negotiated partnerships with Yello and Uber to expand their their source of product. This also may come at a cost and therefore
delivery services and PFD Food services to increase their capacity. this could put some pressure on pricing in some sectors.
Sporting goods and office furniture and electronics have seen an Retailers will also need to provide COVIDSafe environments with
increase in sales. With Gyms mandated to close many sporting measures that include hand sanitiser, temperature checks and
retailers saw a spike in sales as gym junkies set-up a home gym. customer limits in store. There are some fashion retailers closing
With most office workers now working remotely, office furniture and change rooms, and no longer offering fitting services.
office electronics such as screens and laptops saw sales increase
as people set up their home office. JB Hi-Fi and Super Retail Group
both saw sales increase as a result of work from home and gym
closures.
Café and restaurants have been mandated to close and only serve
takeaway. Despite a surge in food delivery services, this is unlikely
to make up for the significant loss in trade as a result of the closure.
The Accommodation and Food sector have been the hardest hit
with the ABS weekly payroll data showing a 33.4% loss in jobs in
the sector and a 30.3% reduction in wages as outlined in the payroll
data.
14RETAIL | Research & Forecast Report | H1 2020
THE
LANDLORD
By Kate Gray
Director | Research
kate.gray@colliers.com
The result of the pandemic shutdown and social distance measures How shopping centres operate is also likely to change. Social
left major shopping centres and CBDs looking more like ghost towns. distancing is with us for the foreseeable future and the enforcement
At the height of the pandemic Scentre Group reported that only 39 of the number of people in a centre will be something that retail
percent of their traders were open even though 88 percent could landlords will need to grapple with. Cleaning requirements, hand
trade under the mandated shutdown, with Vicinity reporting similar sanitation stations, click and collect bays, virtual change rooms are all
numbers. The implementation of the Code of Conduct has been a things which will be required in the COVIDSafe retailing world.
significant undertaking and has drastically impacted earnings for all
SCA Property Group have undertaken a capital raising to sure up
centres. Within the listed sector all retail focused stock has fallen
their balance sheets and position for purchasing further assets.
dramatically with many withdrawing guidance as they work through
Although conditions in retail are worse than the GFC, many of the
the impacts of this fallout.
listed sector have much lower levels of debt which will assist in
Landlords have had to negotiate with their retailers to come to helping them withstand the downturn.
a mutually beneficial outcome and they both need each other to
Shopping centres are also likely to see an increase in vacancy
survive. This is particularly the case for retailers which rely on
as retailers scrutinise their store networks closely and close
discretionary income which includes beauty services, cafes and
underperforming stores. Retail shopping centres are therefore likely
restaurants and apparel categories. The Code of Conduct has
to see a wider range of tenants and become ‘community hubs’.
given a framework for landlords to work within, however there are
Integrating entertainment precincts is an option for some large
some retailers who would not be covered by the code (due to size
centres. We expect more service-based tenants, such as banks,
or downturn in sales) but still applying for similar treatment as
real estate, health funds, health providers (GP, physio, chiropractor,
tenants under the code. There are also some larger retailers which
dentist) and childcare are all options for retailers to broaden their
are expecting terms to be changed mid lease to be exceptionally
offerings.
favourable for the retailer. This has caused much angst with
landlords as they are unable to enforce the normal remedies for such
a situation as non-payment of rent.
As part of the code the landlord is offering a mixture of waiver and
deferral which was evident in our retail landlord survey. A looming
issue is going to be when the deferral of the rent becomes due
(through increased payments across the term of the lease) and
whether or not the retailer will have the capacity to pay. Even if
turnover has returned to ‘normal’ levels, occupancy costs are going
to increase as they are paying the rent due and the deferred rent at
the same time. While it is offering some relief now, occupancy costs
will increase over the term of the lease which is unlikely to be a
sustainable model over the medium to long term.
There are however a few bright spots in the retail landscape.
Supermarkets are performing well and therefore neighbourhood
centres and stand-alone supermarkets which have less exposure to
discretionary retailers are seeing limited downside. Hardware and
some areas of large format retail have also proved to be remarkably
resilient and have seen less downside. Owners of CBD properties
have seen dramatic falls in foot traffic with areas in Melbourne
seeing a 90% reduction in foot traffic and Sydney seeing a 70% fall
in foot traffic. With a large majority of office workers now working
from home this has significantly impacted CBD retail locations.
Regional centres have also been hard hit, although with retail trade
now opening we are seeing a return of customers to these centres.
15RETAIL | Research & Forecast Report | H1 2020
THE
FUTURE OF RETAIL
By Kate Gray
Director | Research
kate.gray@colliers.com
What does it look like ‘on the and bricks and mortar stores. Although it is only early days, we
are starting to see some large industrial requirements come to the
other side’? market to support the large surge in online sales for some retailers.
There is also the rise of ‘dark stores’ which are used to service only
The COVIDSafe economy is going to be quite different to the world
online and click and collect orders. As this is reasonably early in the
we left on 23rd March. At time of writing there is a clear timetable
cycle it is difficult to determine which model retailers will decide to
that the Federal government has outlined to get the economy back up
adopt – ‘dark stores’ in central locations versus large distribution
and running. The first stage was announced on the 8th of May and
centres located close to major infrastructure, which tend to be in
each state has determined the timeline of when the changes will be
more outer areas. It is the ‘last mile’ delivery and the customers
implemented.
expectations of ‘same day’ delivery which will need to be addressed
The lifting of restrictions is ahead of schedule in some states, with by retailers and logistics providers.
Northern Territory, South Australia and ACT recording limited levels
At the very least we expect that store networks will be heavily
of community transmission and have been able to ease restrictions
scrutinised and underperforming stores are likely to be closed.
sooner. New South Wales have commenced easing restrictions,
This is particularly the case for discretionary spend reliant retailers
however Victoria is still at a higher level of restriction with a few
with sectors such as clothing and footwear, department stores and
clusters still a source of new infections. Border restrictions have
discount department stores which were already under pressure
remained contentious, with Queensland, South Australia, Tasmania,
prior to the pandemic. We have already seen Harris Scarfe go into
Western Australia, Northern Territory and ACT requiring a 14 day
administration (recently purchased by Spotlight), Big W is closing 30
quarantine on entry. The Federal government is aiming to have
stores and Westfarmers have announced up to 75 Target stores to
businesses mostly back and trading in July.
close and a further 85 will be rebranded to Kmart. We expect that
The reopening of the economy is expected to see people re- vacancy will increase as a result of this rationalisation and this is
employed, however it is expected that unemployment will remain supported by the fact that 70 percent of landlords surveyed expect
higher with most forecasts expecting higher unemployment for that vacancy will increase over the next 12 months.
longer as a result of the pandemic. Reduced hours and therefore
Demand for retail space is likely to be slower to recover particularly
reduced incomes will be a drag on the economy and this capacity
in the areas of ‘luxury’ and fashion which have been a large
is likely to be absorbed before new staff are hired. It is also likely
contributor to growth. Café and restaurant retailing which has been
that savings will increase, which will be a further drag on spending.
a driver of new demand will now face restrictions on capacity and
However, international travel is unlikely to commence any time soon
stringent new guidelines in the COVIDSafe economy. This is likely
and therefore money spent on international travel is likely to be spent
to place pressure on reasonably low margin businesses and not all
in Australia.
of them will survive. Given these two categories are less likely to be
Spending patterns have been significantly disrupted as a result contributing to new demand, landlords are probably going to have
of the pandemic, and some of these could be a more permanent to widen their pool of tenants and create community hubs. This
fixture. Trends such as eating from home, online shopping, more could include more service-based retailers, which many traditionally
relaxed dressing and more austere spending could be with us for occupy more commercial office space, medical and allied health,
some time. Consumer behaviour has needed to change in response entertainment and childcare are all alternate options. However, the
to this pandemic and we expect that some of these changes will be elephant in the room is that rents for these new tenant types are
permanent. traditionally lower than what specialty fashion and food operators
The uptake of online shopping has been a necessity with stores were paying in the pre pandemic world.
closed, and many retailers have seen significant growth in their The size of centre is important here and we expect that larger
online platforms as a result. We have seen Matt Blatt and Radio centres will be harder hit than smaller neighbourhood centres.
Rentals move to online retail only and these are unlikely to be the Larger centres which have a combination of a high fashion focus
last. There are however some challenges to the online only model and have a high proportion of international tourists are likely to be
with some retailers building significant volume but taking a long hardest hit. In this scenario turnover is likely to be impacted, both
time to be profitable. Therefore, there has been significant growth in from domestic sources, but also a lack of international tourist dollars.
the omnichannel model, where there is an integration of the online Retailers will be facing a double hit, with lower turnover and then
16RETAIL | Research & Forecast Report | H1 2020
if there are rental deferrals which are amortised across the lease,
higher rental payments for the term of the lease. This is not going to
What does this mean for
be a sustainable model over the medium to longer term. investment in Retail?
All this leads us to the proposition that Super-regional, Major regional Right now most landlords are focused on dealing with tenant
and Regional shopping centres and possibly CBD rentals are likely requests for rent relief and the implementation of the code of
to fall, and incentives increase in the next 12 months. We also conduct. This has resulted in transactions volumes and therefore
expect that any bounce back in rents is likely to be a longer-term deal evidence being limited through the next couple of quarters. With
proposition. Sub regional centre rents and incentives has come a high level of uncertainty in the market, many owners are likely to
under pressure in recent years with higher vacancy and therefore delay placing properties on the market until some of the uncertainty
have needed to reposition away from some discretionary categories. and some stability has returned to the retail market. We therefore
Sub-regional centres may benefit from consumers preferring smaller expect that transaction volumes through the next two quarters to be
centres which are easier to maintain social distancing, however we reasonably limited.
are still forecasting rents will fall and incentives will increase in this We have seen the share price of the listed sector with exposure to
sector. retail fall significantly with many REITs withdrawing guidance as
The design of some centres may also change. With social distancing they deal with the shutdown fallout. Some of the listed sector stocks
protocols to become the new normal, the external facing malls are were down over 60 percent which is far below the underlying asset
more likely to be future proofed. Internal malls are likely to have portfolio value which indicates negative sentiment was playing a
higher cleaning costs and there may be higher staffing costs to significant part in the falls.
enforce social distancing within malls. We have already seen some As we have previously outlined there are certain segments of retail
centres making design changes to allow for click and collect orders expected to see rents fall and incentives increase which will place
with in-car collection. This was a trend prior to the pandemic, pressure on capital values. We see secondary grade assets which
however we expect this to be accelerated. require capex and have short lease terms to have a higher level of
There are a few bright spots, however. Neighbourhood centres, risk. This is applicable to all asset classes, but sub-regional centres
standalone supermarkets, hardware and some large format centres are more likely to experience higher vacancy if discretionary retailers
and retailers are likely to continue to perform well. The tenant mix start to rationalise their store networks. CBD retail could also be
in these centres is more targeted at ‘essential needs’ which is more higher risk with work patterns within offices expected to change
steady in a downturn. With income in most of these centres largely coupled with significant falls in tourism. All these factors will place
derived from the anchor tenant, usually a supermarket and possibly downward pressure on rents. Our sentiment survey also supports
a hardware store with a long-term lease, these centres are unlikely the fact that almost 80 percent of the respondents expect values to
to see significant impact on incomes. There is also evidence from fall up to 20 percent.
Woolworths reporting that consumers are shopping more at the local There is a concentrated ownership of regional centres and they tend
neighbourhood centre rather than going to large mall supermarkets. to be generational assets and are rarely traded. Liquidity is likely to
A period of significant disruption usually is followed by a burst be a key issue, and some of the larger assets tend to be less liquid
in innovation. Retailers and landlords alike will need to innovate than smaller assets. We do however expect that there will be a
and create experiences that make consumers want to come back. reassessment of portfolios once there is a bit more clarity and some
Some of the trends we were seeing prior to the pandemic around many undertake either capital raising or offer some assets to the
sustainability are likely to be amplified and possibly a switch to market.
‘support local’ which we are already starting to see. The most resilient subclasses in the current retail environment are
neighbourhood centres, stand-alone supermarkets/hardware and
to some extent large format centres. All these asset classes are
underpinned by a non-discretionary spend category which is far less
likely to be affected by downturns in spending. The leases tend to
be long term and therefore a reasonably stable income stream. We
are seeing a strong demand for these assets with many investors
indicating that they are seeking opportunities to purchase within
this asset class. With this level of demand, we are expecting that
there will be limited change in cap rates for these assets and for
well positioned and presented centres there could be some further
upside.
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