Vacancy within shopping centres has soared to the highest level in more than 20 years despite the re-opening of retail and rebound in foot traffic.
Over recent weeks Australian retailers have been gradually reopening physical stores following a bruising few months that decimated overall sales but accelerated online shopping and e-commerce.
Despite a recent bounce in retail spending after a record-breaking fall in April, the national average shopping centre vacancy rate increased to 5.1 per cent in June from 3.8 per cent in December 2019.
According to a recent survey by global agency JLL, CBD locations and traditionally resilient large format retail stores were also affected with vacancy increasing from 4.8 per cent to 6.3 per cent over the same period.
JLL said it had seen a rebound in sales and foot traffic at the lowest in April across its managed portfolio of approximately 300 centres, however upwards of 10 per cent of stores remained temporarily closed.
“We remain cautious about the outlook for discretionary retail as stimulus measures roll off later in the year which is likely to contribute to an upward trend in vacancy rates,” JLL senior director of retail research Andrew Quillfeldt said.
“The events throughout the past few months, which have led to many discretionary retailers planning to shrink their store network, will likely polarise the retail property sector even more.
“This is likely to drive divergence even further between the performance of prime and secondary quality shopping centres—a trend which has been occurring for some time already.”
Consumers worried about their health and safety during the pandemic have favoured smaller shopping centres and neighbourhood strip centres over recent months.
The lockdowns and social restrictions imposed in response to the pandemic have also accelerated the shift to online retailing lifting by 80 per cent during the pandemic, according to Australia Post data.
Following the recent uptick in infection rates across Victoria, JLL said there would likely be another spike in sales, similar to that during panic buying in March, April and May, as shoppers stock up their pantries, consume more food and drink at home.
“Neighbourhood and large format retail centres have been much more resilient, from a foot traffic, sales and rent collection perspective as these sectors have benefited from the boost in sales of food and household goods,” Quillfeldt said.
Analysts noted that the commencement of new projects and extensions were the lowest since 2009 at just 22,900sq m across the second quarter this year, as owners scale back capex programs.
“Development activity is reducing significantly given the focus on converting existing space,” Quillfeldt said.
“The lower levels of new supply will help rebalance market conditions over the next three to five years.”
According to a recent report by KPMG, foot traffic in CBD stores plunged 87 per cent in the three months to 27 April, and traffic in large shopping centres fell 66 per cent, compared with a 32 per cent decline in traffic at small centres and a 45 per cent fall at medium-sized centres.
The Shopping Centre Council of Australia also revealed that 80 per cent of all SMEs have requested rental assistance in the wake of the National Cabinet’s Code of Conduct, announced in April as part of measures to offset the economic impact of coronavirus.
Westfield operator Scentre and rival Vicinity Centres withdrew earnings guidance, dividend payments and share buyback programs in March, following sharp drops in income directly affecting portfolio valuations.