Sales volumes for retail property have returned to the highest levels since 2015 after seeing off a tough few years for the sector.
According to the latest PropTrack Retail Snapshot 2021, sales volumes for retail assets have increased in the past 12 months highlighting the uptick in buyer demand, while searches to buy retail assets also increased over the course of 2021, before slowing down during the traditional holiday season.
However, the number of searches to lease retail property has continued to be subdued, and is still not back above 2020 levels with the report noting lockdowns, social distancing requirements, and remote working have created challenging conditions for many retailers.
Investor demand
When the pandemic struck in 2020, retail sales volumes dropped to the lowest level seen in over a decade, before rebounding strongly.
Since that point, investors have been active in the commercial real estate sector, driven by the hunt for yields and investments that are considered essential services.
The Retail Snapshot notes that CBD space is starting to see an uptick in interest, led by NSW.
“Among those looking to buy retail properties in New South Wales, Sydney is the most sought after destination, accounting for 4.7 per cent of all searches in 2021, up from 3.3 per cent in 2020,” the report said.
“While this rise in demand is surprising given the challenges faced by the CBD due to COVID-19, some investors may see opportunity in the weaker pricing conditions.
“In contrast, investors are displaying a heightened level of caution in Melbourne.
“While remaining the most searched for Victorian location among those looking to lease retail, Melbourne’s share of searches has fallen from 4.8 per cent to 3.4 per cent over the past 12 months.”
The report found there was still some weakness in the retail sector over the past 12 months in Adelaide (18.8 per cent to 17.8 per cent), Perth (6.6 per cent to 3.8 per cent), and Hobart (8.2 per cent to 5.1 per cent).
Leasing demand
Across the capital cities, the CBDs are still not seeing the same level of leasing demand as they were prior to Covid.
According to the report, in NSW, the CBD is now behind Surry Hills and Alexandria, accounting for 3 per cent of searches and down from 3.7 per cent in 2020.
A similar trend can be seen in Victoria, where the proportion of retail lease searches in the Melbourne CBD fell from 5.7 per cent in 2020 to 5 per cent in 2021.
Richmond is now the most searched for suburb in Victoria among those looking to lease retail, up from 3.7 per cent of searches in 2020 to 5.2 per cent in 2021.
In Queensland, Fortitude Valley remained the most in-demand suburb by retail tenants, accounting for 6 per cent of all searches (up from 4.6 per cent 12 months ago).
Brisbane City followed, but saw its share decline from 3.1 per cent in 2020 to 2.7 per cent in 2021.
Risk-averse investors
After a tricky period for commercial property owners, investors are becoming more risk-averse than ever before, according to the report.
“Retail investors have become more cautious throughout the pandemic, they are increasingly searching to buy assets with tenants already in place,” the report said.
“Searches for ‘tenanted investment’ have jumped by 98 per cent over the past 12 months to become the most searched for key phrase.
“What’s more, searches for ‘high yield’ have jumped up an astonishing 1010 per cent over the same time,” the report noted.
