BIS Shrapnel has warned retailers and landlords against buying into positive news headlines, declaring it as little more than a false dawn.
Senior project manager Maria Lee said government hand-outs, the positive March quarter GDP figure and the bounce-back in the sharemarket have been behind the positive news.
But she said the upgrading of profit guidance by large retailers do not reflect what is in store for the year ahead.
BIS Shrapnel’s Retail Property Market, 2009 – 2019 report highlights a dramatic turnaround in household disposable income, from the strongest level in over 20 years in 2008/09 to a negative result this financial year.
The report also forecasts shopping centre incomes will fall as weaker disposable income drags down consumer spending.
“As unemployment continues to rise throughout the rest of this year and next, we expect consumers to rein in their spending. Last year consumers didn’t spend for fear of unemployment. This year they haven’t got money to spend and, in fact, we think consumers will borrow to shore up spending,”
Lee is forecasting just 0.1% real growth in retail turnover in 2009/10. While food retailing will remain solid, she expects all other categories of retail to suffer falling turnover this year.
“The weakness in retail turnover will put pressure on retailers and their capacity to pay rent. In recent years, strong turnover and higher retailer profitability have supported above-average growth in shopping centre incomes.
“It will now become a challenge to maintain shopping centre income growth in the light of the weaker economic environment, higher shopping centre vacancies and increased financial assistance to tenants,” she continued.
“It’s apparent from A-REIT results that the rate of growth of centre incomes has already started to reduce. We are forecasting shopping centre incomes will fall by around 4% in real terms over the next two to three years,” Lee predicts.
BIS Shrapnel also said there is another threat to shopping centre incomes waiting in the wings – the Australian dollar.
Lee said increases in the Australian dollar and the associated cost reductions underwrote strong rises in profit margins from around 3% at the start of the decade to over 4% currently.
“This, even more than strong growth in retail sales, is what drove strong rises in retailers’ profitability.
“When the Australian dollar collapsed last year it caused a panic among retailers because it seemed as though the high profit margins to which they had become accustomed would come under pressure. The dollar has now made up much of the lost ground, but remains highly volatile and the risk of downward pressure on the dollar, and on profit margins, remains,”
All in all, Lee said it is going to be another tough year for retailers and their landlords before consumer spending recovers in line with the economy around 2011.
Australian Property Journal
