RetailDavid Di MarcoTue 01 Oct 24

Australian Retail Real Estate Faces New Realities

Australia’s retail real estate sector has emerged from the turbulence of the pandemic only to face a fresh set of challenges and opportunities, according to Julian Ackad, managing director of Spectrum Retail Group.

While e-commerce growth has not slowed, bricks-and-mortar retail continues to hold its ground, demanding a strategic evolution for retail property owners and developers.

“Consumers have certainly returned to traditional bricks-and-mortar retail, but that has not stopped e-commerce, which continues to grow,” Ackad said. He said that the best retailers are embracing a hybrid model of in-store experiential shopping combined with the convenience of online channels.

Hear more from Julian and 20 industry leaders at our upcoming Commercial Real Estate Summit in Sydney on October 16.

Click to learn more.

Navigating rising costs, supply chain woes

For developers, the path forward is proving more complex. Retail development has become significantly more difficult during the past three years, with construction costs escalating at a staggering 15 per cent annually, alongside unpredictable supply-chain disruptions and rising interest rates.

“The vast majority of developers have endured the perfect storm in the last 2 to 3 years, with material shortages and price volatility adding to already high construction costs,” Ackad said. “This has led to blown-out delivery programs and escalating project costs.”

As a result, many developers, including Spectrum Retail Group, are adopting a more conservative approach to greenfield acquisitions, with heightened due diligence and a sharper focus on mitigating risk.

“There will continue to be less brand-new greenfield retail supply coming to market until conditions improve,” Ackad said.

The growing role of automation and technology

Looking ahead, the integration of technology and automation in retail real estate is expected to accelerate. High labour costs and elevated occupancy expenses are driving the adoption of new solutions, particularly among quick-service restaurants that are increasingly turning to self-serve kiosks.

“Automation and technology will continue to provide avenues for retailers to optimise footprints and reduce labour,” Ackad said, pointing to examples such as automated kiosks that streamline the customer experience and boost average transaction values.

As well, technology is enabling retailers to manage with fewer staff while delivering a broader range of products at greater speed.

Global uncertainties and technology trends

Geopolitical instability remains a key variable for Australian retail property investors. “The current wars in Israel and Ukraine, and rising tension around China, create uncertainty for Australian businesses making decisions on whether or not to expand or invest,” Ackad said.

Simultaneously, the rapid rise of artificial intelligence (AI) is poised to reshape the sector further. “We can expect AI to increasingly predict what customers both want and need, and offer it to them at the best price and quickest delivery time,” he said, noting that AI’s impact will likely span from customer insights to operational efficiencies.

Location, location, location: What defines a winning retail precinct?

When it comes to choosing the best sites for retail development, Spectrum Retail Group takes a customer-centric approach. “A successful retail precinct is easy to access, either for walk-up or drive-up customers, and is close to homes or places of work for a large number of people,” Ackad said.

The ideal precinct, he said, was not just a place to shop but a destination that filled a gap in the local catchment, providing a compelling reason for customers to visit and return regularly.

Outlook: Consumer spending to rebound

The retail sector’s outlook is closely tied to consumer spending patterns, which have been weighed down by inflationary pressures and rising costs of living. However, Ackad is cautiously optimistic that a recovery is on the horizon.

“It does appear as though the worst is now behind us, as inflation is starting to get under control, and a rate cut or two is predicted by most economists for early 2025,” he said. With inflation contained and interest rates potentially easing, Ackad anticipates a renewed uplift in consumer spending.

As the sector grapples with these converging forces, it is clear that adaptability and a forward-thinking approach will be crucial for those looking to thrive in the evolving retail real estate landscape.