Retail Sector Shines Bright Amidst Economic Uncertainty

It has been remarkable seeing how well the retail sector has performed in the past 36-months.

From being down and out in 2021 with a record high 31 per cent vacancy rate in Melbourne, to virtually halving from 13 to 6.5 per cent between April 2023 – 2024, the rebound has been seismic.

Currently a number of economic factors such as interest rate uncertainty, increased cost-of-living and heightened inflation are still presenting challenges for the retail sector.

However, their influence on spending and retail performance has been more subdued than initially feared.

The latest findings from Urban Property Australia revealed that nationally, the rate of spending has dipped, but Victoria’s retail trade is leading the country and annual spending has managed to increase by 2.7 per cent in the 12-months to February 2024.

While mortgage-holding households could tighten their belts further, there are plenty of positive indicators for retail that could likely drive its performance in the next year.

The steady influx of international tourists and foreign students, coupled with Melbourne’s nation-leading population growth and a firmer push by employers to get staff back in the office, will bring an uplift in inner-metro foot traffic and spending that will buoy the market.

Thanks to these performance drivers, our team expects this to create advantages for both asset owners and retailers, as more people venture into the CBD.

More broadly, retail asset performance, particularly essential amenity like supermarkets in regional markets are enjoying a terrific phase of growth. These are an increasingly sort after property class among investors because of a couple of core reasons.

Perhaps the most appealing part of these commercial real estate assets are their long-term leases, which creates financial security and delivers excellent annual rental yields.

Great proof points underscoring this are our recent sales of Woolworths and Coles supermarkets in country New South Wales.

Thanks to its favourable characteristics, like its central location in town, convenient access to the Hume Highway, its ample car parking and tenant’s credibility in the consumer landscape, Woolworths in Gundagai attracted over 260 enquiries from local and international investors, ultimately selling for $7.2 million – $200,000 above its reserve.

Our transaction for the Coles supermarket in Narrandera shared similar property traits and amenity, which helped it garner 230 quality leads, helping to drive a sale of $6.1 million.

The new owners of these properties are both NSW-based private investors, with the Woolworths set to deliver $501,089 + GST and Outgoings per annum, while Coles will deliver $494,276 + GST and Outgoings over an initial ten-year leasing period.

The retail sector underpins virtually everything we need to function as a society, and through this, creates a multitude of different retail property classes for first-time and established investors to consider – from fuel stations to supermarkets, power tool stores and fast food.

If you would like to learn more about how we think the retail property sector will perform over the next year, or have a separate property matter you wish to discuss, please reach out to us at info@jonesre.com.au.