Weak sales and store closures driving down retail rents: Report

Retail rents could fall by as much as 15% amid weak sales and store closures, according to Morgan Stanley, but an industry expert says retail sales are still growing at a modest pace.

According to an article in The Australian Financial Review, Morgan Stanley analysts noted rents are dropping in a number of malls and for a number of retailers.

But according to the Australian Retail Research and Forecast Report, produced by Colliers International, the first half of 2012 “has been a continuation of what we saw in 2011”.

“The most recent retail trade figures released by the ABS reflect anecdotal evidence from retailers that conditions remain tough,” Colliers research director Nora Farren said in the report.

“A number of high profile retailer collapses and potential store closures were reported during the first half of 2012, but the number is actually lower than for the same period in 2011.”

“The failure of Sleep City, WOW Audio Visual Superstores, Game and Retravision Southern are amongst those to occur during the past six months.”

“While these will have a short-term effect on shopping centre occupancy levels, the fundamentals in high quality centres remain sound.”

According to Farren, retailers will continue to open stores in order to grow profits, with tenant demand for good quality centres expected to exceed availability.

“While sales growth has slowed across the portfolios of the major retail landlords, the bulk still report being able to increase rents on review,” she said.

Strong regional shopping centres and supermarket-based assets have continued to perform better than small- to medium-sized malls with a focus on discretionary retail, the research found.

Well-located neighbourhood centres that are not dependent on discretionary spending are expected to be well placed for growth in 2012.

On a state by state basis, the mining states continue to outperform the rest of Australia with regard to retail spending, with WA now accounting for 11.9% of total retail turnover.

“Within the non-mining states, New South Wales and South Australia bucked the trend… Annual growth for both states is running at 2.1%,” Farren said.

“In Tasmania, retail sales fell 0.6% [in April], matching the Australian Capital Territory’s 0.6% fall during the month.”