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APIL Market Commentary – Retail

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Fortunately, APIL’s retail properties are located in Perth and Brisbane. Those two cities have endured the Covid 19 pandemic better than other Australian capital cities, with most tenants in our properties back trading at near normal levels. Our retail portfolio is further advantaged by being neighbourhood shopping centres underpinned by strong performing supermarkets.

Large-format retail (LFR) specialising in the sale of homewares, furniture, leisure and haberdashery has performed strongly in Perth and Brisbane, which has seen rents remain relatively stable over the pandemic period, with a slight increase of 0.4% y-o-y. JLL’s half-yearly retail vacancy survey shows that LFR’s vacancy rate has declined to 6.6%, after spiking to 7.5% at the end of 2019. A driving force supporting this increased LFR demand has been the increased consumer demand for household goods.

JLL research for Q2 2020 reported national leasing transactions were less frequent over the quarter, with the focus for most landlords and retailers being the negotiation of temporary relief/rental abatements. Rents have slightly declined across the majority of the retail sector, with the national average falling by 1.6% over the quarter and 2.7% for the year to June 2020.

Analysis of data from the Australian Financial Security Authority shows that business insolvency fell nationally by 24% over the June quarter, and has fallen by 41% y-o-y. This statistic is concerning, given that economic conditions at present would indicate insolvencies should be increasing in line with the deteriorating economy.  The possible reason for this contradiction is the federal government’s JobKeeper scheme providing businesses with income support to maintain staff salaries and enabling embattled enterprises to remain operational. The withdrawal of JobKeeper in March, 2021 may have a significant impact on the retail industry.

Additionally, state-based tax freezes have provided support to businesses during the pandemic. WA’s commercial landlord land tax grant, for example, is a program that provides landlords, who provide rent relief to their small business tenants, with partial compensation through a grant which is linked to their land tax obligations. Similar legislation has been passed in other states, with our tenants in the two Queensland assets meeting the required criteria.

Banks have provided lenders with moratoriums on loans until at least the end of September, allowing businesses which cannot meet their financial obligations due to COVID-19 to have payments deferred. The Australian Banking Association has further extended loan deferrals for eligible businesses by an additional four months if a firm’s turnover is continually impacted by COVID-19.

Despite the tough conditions for regional/sub-regional based retailers, JLL notes that neighbourhood properties with fewer specialities have outperformed the sector with the easing of COVID-19 restrictions. Staff working from home have been frequenting their local shopping centres, as opposed to the major CBD and regional centres.

JLL data supports this with turnover accelerating by 6.2% for both food retailing nationally and WA’s household goods categories. This is indicative of people spending more time at home, rather than being out and about.

Another reason for the economic downturn, particularly for the clothing, footwear and personal accessories industry, is the level of discretionary spending in the economy. With the country entering its first recession in 29 years, consumer confidence is very low, and the unemployment rate is at a 22-year high. Many people are not spending their money.  This has led to WA’s clothing, footwear and personal accessories industry falling by 8.1% y-o-y.

APIL’s view of further acquisitions in the retail sector is to continue seeking convenience-based neighbourhood properties with fewer specialties and precinct based large format centres underpinned by strong national retailers.

 

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