Convenience-focused retail outperforming through COVID-19
Neighbourhood retail is in high demand from investors. Retail investment sales are likely to increase through 2020 according to JLL, as more retailers have re-opened, and consumers feel confident in socialising and dining out.
AUSTRALIA – 14 JULY 2020 – With significant transaction momentum across the neighbourhood and sub-regional sectors around the country at present, JLL’s discussions with investors continue to highlight the strong demand for the security and long term returns that non-discretionary, essential services retail provides.
JLL’s Joint Head of Retail Investments (Australia), Jacob Swan - said, “Anecdotally, some neighbourhood and sub-regional shopping centre portfolios collected up to 85% of rent over April and May which was a very positive outcome. Some of the outstanding rent will be collected by deferral and remaining portion will be waived under the code.
“Importantly, the foot traffic rebound in these centres has been fast and effective, as workers remain at home in the suburbs frequenting their local neighbourhood or sub-regional centre as opposed to the major CBD and regional centres. We are aware of many centres where foot traffic in recent weeks has been recorded at levels higher than pre-COVID-19 averages.
“Income was less resilient in regional and CBD centres in April which were more impacted by forced and voluntary closures and restrictions, but the increase in foot traffic in the second half of May suggests the impact will be somewhat short lived. We’re seeing pent-up demand from consumers as they now get back out to the shops.
“Discount department stores have performed well through the last few months, with BIG W having reported sales growth of 27.8% in the June quarter to the 23rd of June.
“Investors are becoming more optimistic about the outlook for retail given the recent rebound in performance from a range of retailers and as economic forecasts continue to be revised up. We expect that to stimulate transaction activity through the remainder of 2020 and into 2021,” said Mr Swan.
JLL’s Joint Head of Retail Investments (Australia), Sam Hatcher - noted, “Many F&B retailers managed to adapt quickly to the new operating environment with many pivoting their business models to cater for greater online deliveries and takeaway. As restrictions are lifted, spending is expected to gradually rebound in the coming months. There has been a strong consumer trend towards dining out in recent years, which will accelerate the recovery in F&B sales in Australia.
“Investor demand for neighbourhood assets, primarily those under AUD 100 million, held up well during COVID-19. Supermarkets outperformed during the peak of the pandemic in March, with monthly retail trade growth of over 23.0%. There was some normalising of grocery spending in April (-17%) but sales were still over 5% higher than April 2019.
“While private investors and syndicators have dominated activity so far this year, non-discretionary anchored retail assets in Australia are appealing to offshore institutional capital sources given the strength of covenant of the major supermarkets, their proven defensive characteristics and strong trading performance. We’re seeing a major push from offshore investors to build scale in this sub-sector of the Australian retail market,” said Mr Hatcher.
JLL’s Senior Director of Retail Research (Australia), Andrew Quillfeldt - said, “There is no doubt that pressures on retail fundamentals have increased since the closures and restrictions were put in place. However, the stimulus measures and funding facilities to support businesses have supported the Australian economy, reducing the potential for higher unemployment, and supporting small to medium enterprises as well as financially affected households.
“While retail sales rebounded strongly in May, by over 16%, and lead indicators suggest June will be positive as well, the leasing market challenges remain. Many retailers are reducing store numbers as they migrate sales online and close unprofitable stores.
“With the recent announcement of Target accelerating their store rationalisation strategy, shopping centre owners will be looking to reposition the space becoming available in regional and sub-regional centres and will be exploring a range of mixed-use options as well as retail conversion opportunities,” said Mr Quillfeldt.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 94,000 as of March 31, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.