SHOPPING centres could be a thing of the past, and why anyone would invest in retail property is puzzling Westpac’s chief economist Bill Evans.
Speaking at the Australian Property Institute’s 53rd Kiparra Day conference in Sydney, Evans warned the day of reckoning is coming for Australia’s retail property market, with big structural changes in store for the sector.
“With Amazon coming and with what we see in the shopping malls in the US, (we) sort of (get) a glimpse to the future,” he said.
“It is really surprising to me that we are still seeing anybody invest in retail.
“I expect that will turn over real quickly.”
In the US, Amazon has transformed the retail landscape with 4,000 shops closed in 2016 and 8,000 more expected to close in 2017, according to Credit Suisse.
The most high-profile victim was Randall Park Mall, once America’s largest shopping centre, it became an early victim of the decline in retailing in the US. In June this year Amazon took over the property and announced it would demolish the 190,000 sqm vacant mall to make way for a new distribution facility.
Over in Europe, Amazon is reportedly seeking to develop 1,300 distribution warehouses to serve its two-hour delivery business – a service it is famous for in US.
Amazon started offering the same service in Singapore in July this year and Australia are next in line.
A report by Green Street Advisors earlier this year found of 1,070 malls in the US, more than 330 are classified “at risk to close”. Credit Suisse estimates around 20-25% of the 1,110 malls will close by 2022.
Just like the trends in the US, Evans said shopping centres will become less important in the near future.
“It looks to me that there is going to be a big structural change. More and more, physical assets will become less important.
“Leaving that aside, the slowdown in retail – which reflects the fall in consumer spending – will also be a factor,” he added.
Evans noted that consumer spending is currently struggling to maintain its growth at 2.5% compared to the pre GFC annual growth rate of 4% – and it is not because households are saving more.
In 2014, there were hopes that retail consumption growth would return to 6% by 2016 once households unlock their savings and start spending again.
However Evans said households have been “eating into their savings” they made during the GFC, with the savings rate falling from 9% during the GFC to 4.5%, but retail spending has lagged.
Amazon’s pending arrival has already affected what was destined to be the biggest commercial property transaction in Australian history, Blackstone’s proposed $3.5 billion sale of its shopping centres.
According to industry sources, Blackstone pulled the plug on the sale earlier this month because potential buyers were spooked by Amazon’s effect on the future of bricks and mortar centres in Australia.
Instead, Blackstone will seek to redevelop the 10 shopping centres portfolio.
Traditionally, Australian retail has been slow to react or adapt to disruption, such as online retailing and the entry of global fashion retailers such as H&M, Zara and Uniqlo in recent years.
Last month department store Myer saw the writing on the wall and decided to take the approach of “if you can’t beat them, join them”, signing a deal that would see it selling Amazon’s Kindle device and accessories.
Just two weeks later, Myer announced a profit fall of 80% to $11.9 million and said it would close three stores.
Australian Property Journal
