April 27, 2017

Australia’s retail property sector is heading into a structural slowdown, with significant implications for both development and asset management.

JLL’s latest Australian Shopping Centre Investment Review & Outlook report shows retail property development was steady over 2016 after slowing from the previous construction cycle, but much of the activity was focused on refurbishment.

“Owners continue to deploy capital into their extensive development pipelines to primarily upgrade and extend existing shopping centres,” says Tony Doherty – JLL’s Head of Retail Property & Asset Management, Australia.

“Investors are likely to sell mature, passive assets to fund large development pipelines.”

The development pipeline’s shift to existing assets has timed well with an anticipated structural slowdown – retail turnover growth is forecast to slow from a 15-year average of 3.5 percent p.a. to 3.0 percent p.a. over the next five years, and 3.3 percent p.a. over the next decade.

Likewise, the market appears to have already factored the slowdown into floorspace projections – while 1.9sqm of retail floorspace has been added for each additional person in the population since 1990, in 2017 that figure is expected to drop to 1.6sqm.

“Over the next five years, based on the supply pipeline and population forecasts, the market will deliver only 1.0 square meters per person, suggesting the market is adjusting to the new dynamics and is not likely to be oversupplied,” Doherty says.

“The structural slowdown means competition for the customer dollar is going to remain high. Landlords are being more proactive about refurbishing and upgrading shopping centres to attract customers and retailers. They are adding dining precincts to increase customer dwell time, retrofitting Wifi and bringing in new international brands.”

Regional centres will account for 33 percent of floorspace scheduled for completion over the next three years, followed by neighbourhood centres (27 percent), sub-regional centres (16 percent), large-format retail multi-unit centres (15 percent), CBD retail (6 percent) and other retail (3 percent).

Over the period, supply will be concentrated in Sydney (32 percent), Queensland (26 percent) and Melbourne (21 percent).

With a structural slowdown in play, the pressure will be on retail property and asset managers to add value for owners.

“Managing retail assets has become a much more intensive exercise given the fluid nature of trends in the retail industry and some of the challenges in the leasing market,” Doherty says. “Centre managers are improving customer experience and re-aligning the tenant mix to best reflect the demands of the local community and latest consumer trends. In addition, managers will seek additional cost efficiencies that don’t detract from the retail experience.”

Doherty says security will remain a key challenge for retail management over the next five years – a challenge which will be made more difficult as centres increase in size and the market shifts towards larger, mixed-use precincts with higher foot traffic.

“Planning authorities are encouraging more mixed-use development, especially in CBD and inner-metropolitan areas,” he says.

“Owners are embracing mixed-use developments on their sites in order to change shopping centres from purely shopping destinations to lifestyle and entertainment precincts.”

“While adding residential components can enhance the performance of the shopping centre by creating a more stable spending profile through enhancing trade in off-peak hours, it also increases complexity and risk.”


Tony Doherty

Head of Retail Property & Asset Management, JLL Australia

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