The retail property market showed signs of improvement in 2010-11 after a soft period during the downturn in the Australian economy.
However, retail conditions faltered somewhat in early 2011. Recent improvements to a range of economic and financial conditions have nonetheless increased consumer and business confidence. This has flowed on to demand for retail goods and services, the main driver of retail demand.
The increased demand for retail goods and services has subsequently strengthened the key property fundamentals such as rental rates, property values, occupancy and yields. IBISWorld estimates that revenue for the Retail Property Operators industry in Australia will increase about 4.4% in 2011-12 to reach $30.2 billion.
This growth in revenue follows a dip for the industry, when the effects of the global financial crisis were felt throughout Australia’s retail market. The reduced demand for retail goods and services during 2008-09 negatively affected retail sales volumes, demand for property space and the key property fundamentals. As a result, industry revenue declined 6.5% during 2008-09. For the five years through 2011-12, industry revenue is expected to grow an annualised 1.4%.
Total industry revenue growth in the near term is expected to trend in line with retail spending and a slight boost brought about by rising rental prices. Property owners remained cautious between 2008 and 2010, preferring to protect occupancy rates rather than secure higher rental rates. As the Australian economy picks up pace, the appetite for risk is expected to increase.
Revenue is expected to increase 1.5% annually over the next five years to reach $32.6 billion in 2016-17.
Products and markets segmentation
Retail property operators provide goods and services to consumers in Australia through a range of outlets. These outlets range from single shopfronts in traditional strip locations to fully contained regional, suburban or city shopping centres, bulky goods depots and hotels and licensed clubs and pubs.
To determine the breakdown of outlets available to consumers, IBISWorld analyses sales data provided by the Australian Bureau of Statistics (ABS) and various industry groups (e.g. Shopping Centre Council of Australia and Bulky Goods Retailers Association). Key ratios have then been calculated and applied to revenue forecasts. IBISWorld estimates that shopping centres, bulky goods retailers and other retailers account for the majority, with a combined market share estimated at 92% of the total. The remaining hotels, licensed clubs and pubs comprise just 8.0% of the total.
Shopping centres are estimated to be the largest individual provider of products and services to consumers, with 40% of total revenue. Over the past 25 years, these outlets have become an increasingly important part of Australia’s retail sector.
As such, shopping centres in 2007-08 attracted over 2.5 billion shopper visits through their 1,360 centres and employed over 500,000 people, according to the Shopping Centre Council of Australia.
Other retailers generate a significant proportion of total retail revenue, about 31%. Largely comprised of single shopfronts in traditional strip locations, this segment has only marginally increased its overall proportion of market share over the past five years (1.0% aggregated)
Westfield Group accounts for 6.8% of market share followed by CFS Retail Property Trust (3.3%).
IBISWorld forecasts that industry revenue will increase an annualised 1.5% over the five years through 2016-17. The industry is expected to benefit from a steadier level of demand for property space in the next five years.
Industry revenue is forecast to increase to about $32.6 billion in 2016-17. Short-term growth in retail sales figures, property values, rental rates and construction levels are anticipated, while occupancy rates are expected to remain stable. Recent volatility in the industry, however, suggests that this is not to be taken for granted.
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