Retailers less likely to be disrupted by online retailing are in the box seat

JLL’s latest Retail survey shows shopping centres continue to shift their offering to food, services, entertainment and leisure to counter key themes impacting sentiment.

April 18, 2018

AUSTRALIA, 9 APRIL, 2018 – JLL's latest research on shopping centre management has found landlords continue to transition their tenant profiles with retailers who are less likely to be disrupted by online retailing.

JLL's 18th Retail Centre Managers' Survey was undertaken in February across 106 JLL-managed retail shopping centres nationally.  The majority of centres were neighbourhood and sub-regional centres.[1]

The main concerns being highlighted by Centre Managers as impacting their future turnover performance have remained constant during 2017 and 2018 to date.  These are:  competition from other centres, followed by online retailing, fuel prices and the economic outlook.

JLL's Head of Property & Asset Management – Australia, Richard Fennell said, "When we asked Shopping Centre Managers what factors were impacting turnover performance, competition from other centres remained the top concern, with online retailing again in second spot, for the third survey in a row.  

"We found that a number of landlords are transitioning their tenant profiles with retailers who are less likely to be disrupted by online retailing. 

"A number of centres are shifting their offering to food, services, entertainment and leisure uses and focusing on marketing initiatives to drive customer traffic. In addition to food and beverage operators, it's health, gyms, medical centres, other medical-related services and insurance that are expanding in shopping centres.  

"However, in some centres the amount of food and beverage tenancies has begun to create competition for existing operators. And the expanded offering of the supermarkets has started to result in lower demand from speciality food retailers.

"But overall, food operators continue to drive tenant enquiry levels while online retailing continues to a key headwind for the fashion segment," said Mr Fennell.

Promotional discounting remains a major drag on retail sales growth, with prices for 'clothing and footwear' having declined by 3.0% in the year to December 2017 and having declined by 0.8% for 'household goods'.  However, the non-retail categories of household consumption continue to record the highest price increases, including Education, Health and Housing, all of which are major components of household budgets.

JLL's Director of Retail Research, Andrew Quillfeldt said another key result from the survey was an improvement in tenant enquiry, albeit from a low base, and Centre Managers were a bit more optimistic on the outlook for retail sales growth over the next 12 months.

"Centre Managers are more optimistic on retail sales growth in their centres over the next 12 months compared to the previous surveys, with more than half (56%) expecting an increase.  "Planned refurbishments, tenancy profile changes and growth in the trade area were driving factors of the improved trading expectations.

"Total shopping centre MAT (Moving Annual Turnover) growth improved marginally but remains generally subdued. Sub-regional centres recorded growth of 1.0% in the year to December and just 0.2% in neighbourhood centres.

"Specialty store rental growth continues to be relatively constrained by subdued retailer demand.  The market remains favourable to tenants in most centres.  However, 37% of Centre Managers anticipate some level of rental growth in speciality rents over the next 12 months while 43% believe rents will stay the same over that same period," said Mr Quillfeldt. 

Rental growth was found to be more consistent between the two main categories of shopping centres surveyed.  Sub-regional speciality rents grew by a modest 1.1% in the year to December 2017 – the lowest figure reported in the last eight surveys and below the current rate of inflation (1.9%). Neighbourhood centres reported a growth rate of 1.2% in the year to December 2017, up from -0.9% in the year to June 2017. 

[1] Classifications for shopping centres by sub-sector:  Sub-regional centres:  Centres that are discount department store based (e.g. Kmart, Target and Big W).  Neighbourhood Centres:  Enclosed centres containing at least one supermarket and specialties.

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2017, JLL had revenue of $7.9 billion and fee revenue of $6.7 billion; managed 4.6 billion square feet, or 423 million square meters; and completed investment sales, acquisitions and finance transactions of approximately $170 billion. JLL has over 50 years of experience in Asia Pacific, with over 37,000 employees operating in 96 offices in 16 countries across the region. We were the first global commercial property firm to establish an Australian presence in 1958 and currently employ over 3000 employees throughout our 18 offices across the country.  www.ap.jll.com.