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News release

Australian Retail: Is the worst behind us?

The cut  in interest rates boosted consumer sentiment in November and might be the catalyst for the solid fundamentals of spending to re-assert themselves


AUSTRALIA, 2 DECEMBER 2011 – Recent moderate improvement in retail turnover and consumer sentiment may prove to be a turning point in the weak retail trade environment that has prevailed over much of 2011, but the retail property market will remain challenging in the short term and a steady improvement over the next 12 months expected.
 
Jones Lang LaSalle’s Australian Retail Property Update for Q3 2011 states that while Australia’s economic outlook remains solid, the multi-speed economy is putting pressure on retailing.  While the resources sector has returned to a fast pace of growth, some sectors including retail, manufacturing, tourism services and residential and commercial construction remain subdued.
 
Director, National Retail Research at Jones Lang LaSalle, Leigh Warner said that there have been a lot of factors keeping spending subdued in 2011.
 
“A lot has been said about the general caution of consumers and the high savings rate, but undoubtedly retail spending has also suffered as a result of the high Australian dollar. Inbound tourism has been dampened and a lower-spending mix of visitors has emerged, while outbound tourism has surged to record levels, which leads to leakage of spending. The dollar has accentuated pricing differences for online shopping and encouraged strong online consumption.”
 
While this ongoing soft retail environment has seen the retail property market slow further in the third quarter of 2011, recent data has shown modest improvement in consumer sentiment and retail turnover growth.
 
“There is some evidence coming through that the fundamentals of retail are slowly turning,” Mr Warner said.
 
“After averaging 104.3 over the first half of 2011, the Westpac/Melbourne Institute Index of Consumer Sentiment fell to 89.6 in August, its lowest level since May 2009 in the midst of the GFC. In part this decline reflected global economic uncertainty and financial market turmoil, but the press articles on the carbon tax also influenced the result. However, the index has risen over the past three months and the November interest rate cut saw the index rise 6.3% in November to 103.4 points.
 
“While global economic uncertainty and the general caution of consumers are not likely to disappear overnight, the rate cut may be the stimulus needed for some of the solid fundamentals underpinning spending (including population growth, low unemployment, and solid wages growth) to reassert themselves,” said Mr Warner.
 
Australian Head of Retail Investments at Jones Lang LaSalle, Simon Rooney said on the investment side, 2011 was shaping up to be another strong and robust year for sales.
 
“Major investment activity has remained solid and 22 sales totalling AUD 427.1 million were recorded in Q3/2011, with the largest transaction being the sale of the 50% stake in Cairns Central from the Westfield Group to the Australian Prime Property Fund Retail for AUD 261 million. This quarter takes sales over the first three quarters of 2011 to over AUD 2.2 billion.
 
“Yields were stable in nearly all sub-markets in the third quarter.  Demand for prime assets remains strong, with a busy fourth quarter anticipated as we expect to transact a number of major investment deals prior to the end of the year,” said Mr Rooney.
 
Jones Lang LaSalle’s Australian Head of Retail Management, Tony Doherty said the outlook is for a slow and steady pick up in retailing in 2012 and 2013.
 
“As retail turnover growth gains momentum in 2012, and with the strong AUD supporting many retailers’ margins, we expect the general level of tenant demand for retail property to begin picking up. 
 
“With still moderate levels of construction activity except for a few particular retailers, vacancy rates are likely to remain low across all sub-sectors.  This low vacancy and improving market conditions is likely to see rental growth steadily build over the next two years.
 
“There is currently considerable variation in the strength of turnover growth across the states.  The strong rebound in the resources-driven West Australian economy is reflected in 8% turnover growth over the year to September 2011. 
 
Queensland’s turnover growth is also steadily picking up as the state’s economy regains momentum (3.4%).  Turnover growth has been more subdued over the past year in New South Wales (0.8%), Victoria (1.8%) and the ACT (1.7%), while South Australia turnover declined 0.1% over the past year.
 
“The best thing a shopping centre owner can do in the current environment is to look to differentiate their centre. This could be done in any number of ways including changing the tenancy mix, reconfiguring or refurbishing assets, or just through marketing initiatives. The bottom line is that it is a competitive environment to capture the retail dollar at present and creating a fresh and convenient shopping experience for customers can be pivotal to assets succeeding or failing in this market,” said Mr Doherty.