New retail floorspace needs to grow by 2.2 million square metres to facilitate population growth of +15% in the next decade.
Existing retail assets will reap the benefits of an undersupply of 2.2 million square metres of floorspace nationally by 2032, potentially absorbing an additional $20.5 billion in sales by today’s market metrics, according to Colliers’ Population Growth Report.
There is no doubt demand will outpace market supply of Australian retail centres, which saw strong sales performance incur positive rental growth across all retail assets over Q3 2023 and an average occupancy rate of 99% nationally. For context, Australia’s industrial market has enjoyed significant rental growth as one of the tightest globally, with a comparable national average vacancy rate of 1%, according to Colliers’ Managing Director of Asia Pacific Retail Capital Markets Lachlan MacGillivray.
“The retail development pipeline and scarcity of available sites in most major cities will see retail space struggle to maintain the current ratio of 0.91 square metres per capita, in light of the Government’s national population projection of 29.8 million by 2032.” Mr MacGillivray said.
“Just to maintain the current per capita levels nationally for Super and major regional centres alone, an additional 1.13 million square metres of floorspace, the equivalent of nine Westfield Bondi Junction centres, will be required.
“Since these centres are nearly impossible to replicate due to land constraints, the existing assets within this high performing asset class will be the beneficiaries of population growth, absorbing an additional $10.9 billion of retail sales by 2032, which should see specialty sales increase by at least 33% or around $3,000 per square metre.
“As the amount of retail floorspace available in Australia drops to 0.84 square metres per capita by 2032 – a stark contrast to the United States’ current 2.12 square metres, two examples of assets that are expected to outperform are Westfield Fountain Gate in Victoria and Westfield Chermside in Queensland.
“Both centres are extremely strong in high growth markets, turning over well in excess of $1.1 billion per annum with major landholdings presenting opportunities for additional and complementary uses such as Build-to-Rent, Build-to-Sell, student accommodation, office, medical and education services.
“We have seen Vicinity commence this journey via many years of strategic mixed-use development at Chadstone in Victoria and GPT have major plans for Highpoint in Victoria.
“Unlike global peers, the irreplaceable locations of iconic Australian retail centres and opportunity for additional uses will draw more customers and drive retail asset outperformance for years to come.
“It would be impossible for new developments to replicate the success of Super and major regional centres, which have grown with communities since the 1950s, leveraging loyal consumer bases and frequent visitation.
“We are seeing increased domestic and offshore capital targeting this coveted investment class, which boasts an average of at least 1 trade area customer visit per week compared to 1 visit per month for their counterparts in the United States and United Kingdom.”
The strong performance of flagship centres over the past quarter reflects their ability to innovate and create vibrant shopping experiences for their local catchments, with tenancy mixes increasingly favouring dining and entertainment offerings, according to Colliers’ Associate Director of Research Nik Potter.
“These assets now comprise an average of 41% of experience-based stores and 2.4 supermarkets, ensuring 11 of Australia’s iconic centres currently turnover in excess of $1 billion annually – a feat which only six achieved pre pandemic.” Mr Potter said.
“We have also witnessed positive momentum for rental growth for Super and major regional assets, with annual market rate growth of +1.6% over Q3 2023.
“In the context of a looming major undersupply, we expect this positive leasing activity to continue to increase.
“The performance of assets across the Australian retail market will be enhanced by population growth, as brands continue to benefit from the halo effect of a bricks and mortar presence for online sales in their local areas.”