Beleaguered department store Myer may hand back up to 90,000sq m of floor space over the next four years, as deteriorating conditions continue to weigh on Australia’s retail sector.
In an assessment of Myer’s 58 leases, UBS analysts said that the department chain’s large store footprints will be a challenge in a sector where buyers seek convenience, differentiation and “store theatre”.
Myer has 15 stores coming up for renewal by 2025, accounting for 27 per cent of the total Myer gross lettable area.
“We conclude a potential hand-back of 16 floors — about 90,000sq m — over the next three to four years,” UBS analysts said.
Myer has vacated in Westfield Hurstville and Castle Hill and has downsized — making way for a large format Woolworths — in Cairns.
UBS said that despite short-term loss for landlords, they expect landlords to be able to backfill lost Myer tenancies to “improve foot traffic, sales productivity and income over time” — creating long term benefit.
The space will be filled by supermarkets, mini majors and alternate users like co-working office space and leisure offerings.
The plethora of retail assets on the market will be the biggest headwind for the property sector in 2019 — and the disposal queue of retail assets is not expected to clear any time soon.
Anaemic rental growth, declining business confidence and a reversing wealth effect has seen a decline in the shopping frequency at Australian malls.
“Australia saw a decline in shopping frequency for traditional basket of goods at malls and department stores, which highlights the opportunity and incentives for landlords to negotiate with Myer to help them reduce their store footprint,” UBS said.
“What’s unique to Australia is that the consumer wants better car parking options (rather than services, dining, international brands) which generates minimal return on capital expenditure.”