Over the past two decades, the Australian retail market has traditionally outperformed other commercial property sectors, and 2012 has been a defining year, with the sector undergoing significant structural change.
We have seen weaker retail sales driven by a shift in the mix of spending, retail price deflation and pressure on retailer margins, challenges posed by the strong Australian dollar and the continued evolution of online retailing in Australia.
However, the sector is expected to strengthen going into 2013, with retail assets remaining appealing from an investment perspective.
High-quality, dominant Australian shopping centres are still performing well despite the slowdown in retail turnover growth. They continue to be viewed as a defensive investment class, especially neighbourhood centres anchored by supermarkets, as food retailing, reliant on non-discretionary spending, is where the growth has been in the Australian retail sector.
Not only are international retailers expanding into the Australian market, but foreign investors have also been avid buyers of retail property in Australia.
The retail sector will continue to benefit from capital inflows from overseas investors. The high relative yield spread – due to low bond yields – combined with a global appetite for low-risk investments, will support this demand during 2013.