Commercial brokers face uncertain retail future

by Caroline Dann11 Jul 2012

For brokers working in the commercial sector, this should come as no surprise: retail property is facing a very difficult future indeed.

The threat of online shopping, poor consumer spending and rising property costs is stunting growth, according to BIS Shrapnel’s Retail Property Market Forecasts and Strategies 2012 to 2022.
The report, released today, found growth will average just 2.9% in the next five years, compared to a 5% average growth rate experienced in the pre-GFC 1990s.
Increasingly tech-savvy consumers are putting the pressure on retailers, which in turn affects confidence in the commercial property sector.
The rise in online activity, it claimed, is putting enormous pressure on traditional bricks-and-mortar retailers to up their game.
“Consumers are using price comparison websites or apps on their mobile phones when in-store, and then demanding a price-match in order for them to buy there and then. This can have an impact on retailer profit margins,” said BIS Shrapnel’s senior project manager Maria Lee.
The increasing gap between retail property construction – which is surging - and actual profits is another major problem for long-term growth. 
“If rent is going up by 4% a year but turnover is growing by less than that, occupancy costs rise. Specialty shop occupancy costs are at an all-time high. They are unsustainably high for some tenants.” 
Any notion of rent hikes benefitting property owners is quickly discounted by Lee.
"Those costs are leading occupants to either not renew at the end of the lease or demand a cut in rent to stay. If they leave, the incoming tenant is achieving a more attractive offer, in a combination of lower rent and/or leasing incentives."
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