Retail landlords are continuing to watch large numbers of shoppers return to stores despite ongoing support for online purchases.
In the five years leading up to the COVID-19 pandemic, online retail rose almost 25% per annum. This however was off a low base and by 2019 online sales were still only accounting for a little over 6% of national retail turnover.
While the onset of the pandemic with its subsequent social restrictions and rolling lockdowns sent shoppers online in droves, total internet retail sales peaked at 14.36% per cent of all retail turnover in August 2022 according to the Australian Bureau of Statistics.
Now ABS figures for May 2022 show a steady decline to the point where online sales have contracted to 10.68% of all sales.
“We are seeing customers flock back to their local centre to re-acquaint themselves with the in-person shopping experience,” said Ray White Commercial’s head of research Vanessa Rader, adding that the lure of “quality food and entertainment has brought vibrancy back to centres and strips”.
Changing times for shopfronts
The scene was already changing for bricks and mortar retail before the onset of covid, Ms Rader said.
“Prior to the pandemic we saw vacancy rises in some markets as a precursor to online shopping,” she said. “As a result there were rental adjustments in many segments of the retail market which came after many years of strong gains.
“Our changing shopping habits also led to an overhaul of the retail mix in our strips and shopping centres. Larger centres moved their focus to food and entertainment, department stores reduced their footprints and smaller centres pivoted to providing greater convenience with a focus on food.
“Many retail strips saw a move away from fashion and soft goods, making way for greater food offerings and services such as beauty and medical.”
Retail vacancies continue to haunt the sector months after the end of lockdowns and social restrictions.
“Despite demand to purchase retail assets being high over the last 18 months, concerning occupancy levels have resulted in rental discounting as well as some churn across retail tenancies,” Ms Rader said.
New trends emerging
Innovation however is coming to the fore as more service providers turn to retail assets as an alternative to their usual go-to of office or speciality spaces, Ray White Commercial researchers found.
“These service providers are doing this to give their customers a better experience in locations with parking or transport options,” Ms Rader said.
“Medical facilities and childcare operations are all examples of uses now appearing in our centres and retail strips which were nowhere to be seen in these spaces many years ago.
“This is likely to be a growing trend as these are all services which cannot be provided exclusively online, however will impact rents.”
Also emerging as fresh tenants for beleaguered retail centres are entertainment and food outlets. “These will continue to be a growing segment in our retail centres,” Ms Rader said. “New options emerging include sporting venues for Esports, virtual reality, golf, climbing and more. It shows that savvy retailers are using their bricks and mortar stores to provide an immersive experience which translates into online sales, so they are still capturing the sale but in a different format.”
This however is causing some concern regarding the future of retail rents, leases, and their structure, Ms Rader said. “We expect this to be navigated over coming years…. and while for some there is still uncertainty surrounding physical retail shopfronts, they are certainly not dead.
“A continuing change to the retail mix is inevitable and adaptive reuse for some vacancies and moderation on returns for landlords is likely.
“But the reducing proportion of online retail sales continues to point to our desire to be in-store – and that is good news for the future of retail.”
As far as grocery sales go, online shopping in the way of click-and-collect continues to gain momentum and operators are coming to the party.
Woolworths has just launched its first online fulfilment centre in Australia offering “direct to boot pick-up”.
The 10,000 sqm centre is located in Brisbane’s southern suburbs and allows shoppers to go straight to the warehouse to pick up their online grocery orders. Woolworths ecommerce department has seen online grocery orders more than triple in the metro Brisbane area alone.