In a rollercoaster year for retail sales, a survey of retailers has indicated an optimistic outlook for store network growth. In what the national property agency CBRE described as a ‘flash survey’, 83 per cent of Australian respondents across a snapshot of the Asia Pacific region indicated expansion plans. CBRE didn’t provide a breakdown of the number of Australian retailers responding about their 2023 growth plans, but 61 per cent of them indicated they were planning to increase the qual
e quality of store locations.
The scale of a renaissance in bricks-and-mortar store openings may well be modest but it does contrast with an extended prior to and through the Covid-19 pandemic of store network pruning.
CBRE contends that despite the “heightened cost of living pressures” business confidence was running high and leading to a lift in leasing inquiry rates.
The property firm attributed gains in central business district sales in the second half of calendar 2022 and prospectively the store expansion plans to healthy levels of discretionary spending.
CBRE said events and the return of international students and tourists as well as a return of office workers would be positive drivers for CBD retail sales in the year ahead.
Retail sales on the rise, but inflation a factor
According to the Australian Bureau of Statistics, retail sales in Australia grew by 1.9 per cent month-on-month to $35.09 billion in January 2023.
The lift in sales followed a disappointing 4 per cent in December 2022 underpinning a 1.6 per cent annual growth for seasonally adjusted Australian retail sales.
Allowing for elevated inflation levels, retail sales on an annual basis are no doubt running below the 1.6 per cent growth figure in real terms.
For the period of October to January, the ABS described retail sales as flat contrasting with the more bullish assessment of CBRE.
The rebound factor in CBD retail sales noted by CBRE for the second half of calendar 2022 needs to take into account the cycling in the previous 2021 of pandemic lockdowns.
The January 2023 retail sales nationally were 7.5 per cent above the same month in 2022, reflecting the lag in the recovery after the lockdowns ended.
Opportunity to lock down good locations
CBRE’s latest report on CBD vacancy rates nationally indicated a fall from pandemic levels of 15.9 per cent to 13.9 per cent with Sydney and Brisbane recording slight increases in vacancies.
The CBRE survey across more than 5000 retail outlets in Sydney, Melbourne, Brisbane, Perth and Adelaide CBDs.
It did not canvas the ratio of empty stores in suburban or regional strip centres or shopping malls, many of which have significant vacancy rates.
While retail sales patterns were still impacted by the pandemic, and retail leasing in the lead-up to Christmas was potentially flattered by seasonal pop-up stores, there is a very real prospect of retailers rebuilding store networks.
The return of corporate and public service workers to CBD and business precinct offices, international students, tourists and major events should boost retailers in the capital cities and some prime retail destinations in 2023.
Those factors will all be on the radar of retailers along with the opportunity to negotiate continuing favourable lease terms and to cherry pick good locations that other retailers have been forced to close.
The opportunity to boost market share and brand exposure in locations that were previously almost impossible to secure is likely to encourage retailers to return to an expansion mindset.
Mixed picture of consumer confidence
Volatile economic conditions, higher operating costs and the expiration of concessions by the tax office, other government agencies and financial institutions will see more casualties amongst retail businesses in the months ahead.
The economic outlook and consumer confidence levels to support new store growth will be influenced by inflation and cost-of-living pressures as well as the impact of interest rate increases.
While only one third of Australians are owner-occupiers with mortgages, the interest rate increases are flowing through to rising rents for tenants and risking job losses in businesses carrying debt.
There is evidence Australians are curbing their spending with household savings levels plunging since interest rates began to climb in May 2022 and discretionary spending capacity tighter than for more than three decades.
Paradoxically, a report from the research firm, Resolve Strategic, commissioned by the Sydney Morning Herald was potentially a short term good news story for retailers but a bad news story longer term for the broader social, political and economic outlook.
Resolve Strategic found 72 per cent of young people surveyed do not believe they will ever own a house, and with less incentive to save for a property purchase, the 18 to 34 year old respondents are likely to keep spending on retail, entertainment and travel.
Whether or not their spending habits counter balance any contraction for other age groups or skew shopping destination choices, including online shopping, could be crucial to many retailers in the months and years ahead.
Other significant factors retailers will need to watch closely that will shape future retail spending will be population growth, migration trends and an ageing “traditional” population.
While CBRE’s latest survey reports give cause for optimism, retailers are clearly still wary of economic conditions in 2023.
Vacancy rates in CBDs across retail centres throughout Australia would be expected to continue to fall this year but the scale of the post-pandemic recovery is difficult to predict.
The CBRE survey on CBD vacancy rates for the second half of calendar 2023 found Sydney had the lowest percentage of empty storefronts at 8.3 per cent with Melbourne at 9.2 per cent, Adelaide at 13.3 per cent and Brisbane and Perth seriously lagging at 18.4 per cent and 26.1 per cent, respectively.