Retail property is still breathing. Who would have thought?

Has COVID killed the retail sector?

Despite many strong opinions that the retail space is dead, walking the suburban high streets of our capital cities tells a different story with new businesses popping up and others expanding.

Perhaps nowhere is this more evident than in the increased number of commercial property searches which jumped 30 per cent year on year, with Tasmania leading the way at 28 percent.

Granted, there are some very sad situations where small businesses haven’t been able to hang on. CBDs in particular are hurting and capital city shopping strips have suffered from a lack of tourism, immigration and lockdown.

However, we must remove our emotion and remember this is nothing new. It’s easy to see a shop fitter stripping a fit out and think “Bloody COVID”, but small businesses frequently fail for a number of reasons, even in the absence of a pandemic.

What’s clear is that while retail continues to experience strong growth, only certain types of retail have benefitted from the changes in consumer behaviour. The typical high street is no longer home to shoes, bags, clothes and trinkets. This has mainly moved online and the tenancies have been replaced by service driven retail, rather than products.

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Year-on-year change in searches for properties for sale

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With this in mind, which sectors are expanding?

As the population grows, the need for services like food, massage, beauty, health and fitness, wellness, dental and medical has also grown. Right alongside this trajectory is our new convenience driven lifestyle: “I want Japanese for dinner in 15mins ordered from an app with little human contact.”

According to Ibisworld, the challenging and changing retail landscape was not ignited by COVID but has actually been around for some time and some key points to realise in the retail industry are:

• Growth in consumer goods retail has been in decline for the past five years, mainly due to competitive pressure from online retailers. This has decreased rental yields and increased vacancy rates.
• Demand for retail space from supermarket and grocery stores has grown and the lower cash rate has enabled more investment in fit out and expansion.
• Although retail industry revenue has declined at an annualised 2.8 per cent over the last five years to $28.3 billion – more drastically in the last year from pandemic induced lockdowns and ‘essential service only’ spend – overall, retail is forecast to rise at an annualised 3.6 per cent over the five years through 2025-26, to $33.9 billion.
• As COVID-19 restrictions are lifted and retail trade conditions improve, commercial landlords and industry players will look to acquire more service-based tenants, such as beauty and health services.
• As retail stores decrease in size due to lower levels of inventory and the preference for online shopping, tenancy in regional shopping centres is forecast to rise owing to luxury retailers looking more favourably on the shopping centre model and industry operators using ‘anchor tenants’, such as supermarkets, to increase and retain foot traffic.

Investment in certain retail sectors is clearly still thriving although it’s important to understand the shifts in consumer behaviour to avoid investing in the wrong type of retail site. While metropolitan CBDs and shopping centres have been hit hard, increases in population, and demand for property in regional areas, indicate the retail property sector is still very much alive once you know where to invest.