Sydney retail market continues to grow without peaking: HTW Retail

The retail market in Sydney has seen moderate growth over the past twelve months as a result of increased demand for good investment assets, growth in rental income and generally lower vacancy rates, according to the latest report from valuation firm Herron Todd White (HTW).

They found that some retail precincts and shopping centres are working hard to keep up the levels of foot traffic and as such are adapting to changes in the market and demand. This has helped to retain vacancy in some areas.

The HTW report authors said, "we are of the opinion that those landlords who adapt to the changes in the market may fare best."

"Food and beverage outlets have certainly been popular this year. This part of the market has been driving tenant demand."

"As a result of adaptation and increase in demand from food and beverage retailers, we have seen rental rates remain generally stable this year following a general increase in 2018."

Despite the continued threat of online shopping and generally negative perception of the retail market, The Sydney CBD remains strong, as infrastructure improvements and new development continue and speculation about the impact of these continues to drive areas of the market.

Within the CBD, tenant demand originates from high end and luxury goods as well as food and beverage, with retailers keen to secure their positions within the CBD as infrastructure improvements, mainly the light rail, get closer to being completed and the pedestrian shopping areas of the CBD are revitalised.

Retail assets with good lease covenants have seen capital growth over the past twelve months.

Demand from investors was the driving force in the market this year.

The valuers noted, "properties with well-established retail tenants and those with underlying future development potential were the most popular."

"We saw an increase in capital values in the early part of the year and some strong sales with relatively low capitalisation rates."

"We caution however that from around July this year we have started seeing a decline in the fringe and secondary markets, in particular a slight increase in capitalisation rates, indicating that demand is slowing and that capital values are declining," they concluded.