Our love of food and beautiful living spaces will continue to drive retail spending into 2021 according to CBRE’s most recent retail industry forecast. We will also realign purchasing habits with personal habits and values industry analysts say, creating a pattern of consumer demand that will drive opportunities for investors, landlords and occupiers alike.
Retail was rocked last year by lockdowns and restrictions. But this recalibration has created opportunities for savvy investors said CBRE Head of Logistics and Retail Kate Bailey. Rental declines should stabilise in coming months and investors can now seek out ways of repositioning retail assets to maximise rental growth.
The Great Unknown
The looming question however is around retail sales. Spending will undoubtedly drop but it remains to be seen by how much. The pandemic triggered an unprecedented rise in sales in 2020 – an almost 14 per cent jump in monthly retail sales turnover between last February and November. Major retailers such as Harvey Norman reported all-time sales records as lockdowns led to a surge in updating and home renovation. The likes of Woolworths, Coles and JB Hi-Fi experienced similar. In January alone consumers splashed $30.5 billion on retail sales according to industry marketing strategists ShopAbility, close to 11 per cent above the same time last year.
Analysts say while spending will undoubtedly taper off it will still remain buoyant. ShopAbility estimates growth to continue around the 3 to 5 per cent mark while CBRE’s retail report forecasts sales remaining elevated at least through to mid-2021.
Leasing comes to life
Leasing inquiries are currently “quite high” said Ben Tremellen, partner of national leasing specialists Retail Realm. One of the most active areas has been among the hardest hit, with hospitality operators seeking out good deals. “These operators are looking for opportunistic property plays, like old restaurant premises that already have fit-outs,” Mr Tremellen said. “Overseas inquiry has also started from operators of international fast fashion chains, looking at upcoming opportunities in the Bourke St Mall.”
Much of this year’s consumer spending will flow on from 2021’s record demand for groceries and household goods, the CBRE report states. This is good news for shopping centres where supermarkets and fresh food outlets will underpin continued demand for retail floorspace, CBRE’s retail report states.
Mr Tremellen said he was seeing shopping centres still trading well, adding that the correction in rents would be here to stay for some time. In recent months, rents had dropped 20 per cent on average in Melbourne’s Bourke Street Mall, he said, and as much as 30 per cent on the Swanston St strip as landlords raced to prevent tenants closing their doors or threatening to do so. “We saw the market react quickly to keep people trading,” Mr Tremellen said. “Now we’re also seeing a lot of retailers re-strategise their bricks and mortar by going for a single, more high profile location rather than having several sites.”
Still facing a hard time are department stores. Largely reliant on discretionary spending, CBRE forecasts a 2.6 per cent per annum decline in demand for floorspace until the end of 2024. Homewares and home furnishing stores will be the exceptions. In the next three years CBRE sees floorspace demand in these retail outlets matching 2015-2019’s 2.5 per cent annual increases now that consumers have had their love of home life reignited.
Mindful consumers arise
McKinsey consultants most recent report on our shopping habits, Getting Acquainted With A More Mindful Australian Consumer, found people’s homes have taken on “a social prominence not seen since the era of 1950s housewives, such as Mad Men’s Betty Draper”. Homes are once again our castles – and this is presenting businesses with “a massive carte blanche to innovate and shift their brands and product portfolios.” Huge opportunities for growth now exist across products and services from food and beverage extending to the ‘vinyl revival’. Spending in this area will also be fuelled by the Homebuilder Grant as it accelerates residential construction and boosts hunger for new furniture, household goods and appliances.
Consumers in general are more frugal while remaining considered. They are also increasingly prioritising pricing, McKinsey researchers finding even those shoppers once prepared to pay a little more for quality less inclined to do so. In addition to well-documented trends towards local neighbourhood shopping and buying Australian-made, we are now becoming more likely to choose small brands especially in packaged food, a trend the McKinsey report says “will only accelerate in the coming years”. These shifts in consumer spending mean it is becoming more essential for companies to have “hyper-relevant brands” and invest in even more tailored and personalised touchpoints” to sell their goods, the report states. “Although many Australians feel significantly more frugal and financially vulnerable to the economic shock of the COVID-19 crisis, we expect consumers will still be remaining steadfast in their intentions to bring values like local, small, and sustainable into their purchase decision – denoting the arrival of a more mindful consumer.”