Brisbane retail continues to struggle: HTW Commercial

Retail continues to be the most challenging sector of the property market in Brisbane, according to the latest report from valuation firm Herron Todd White.

“An emerging reality is that there is simply too much retail available across Brisbane to service relatively flat levels of tenant demand. The oversupply is exacerbated by the ongoing growth and sophistication of the online environment and the significant cost advantages that online retailers enjoy compared to bricks and mortar retailers,” said the firm.

The March report found that there is an increasing level of vacancy in areas previously considered as prime and a much greater level of focus on convenience, parking and exposure.

"This is causing a greater level of differentiation between prime and second tier properties which is evidenced in both rents and yields. Issues such as decreasing availability of parking, the growth of delivery services and the higher costs of living generally have eaten into the profitability of a number of café precincts in the inner suburbs of Brisbane," they said. 

Previously strong locations such as Bulimba, Nundah, Portside, Given Terrace, Racecourse Road, Park Road, Stones Corner, Coorparoo and Windsor in particular are seeing higher levels of vacancy and increasing levels of tenant turnover.

For some of these precincts, recovery is likely to take many years. On the investment front, buyers are increasingly aware of the retail headwinds and have become increasingly cautious.

They are more closely examining lease covenants, lettability and sustainability of rent levels before committing to purchase.

Coupled with this, the inability to replace strong retail assets is leading to a diminishing supply of good quality stock for sale and lower levels of sales accordingly.

As a result of this caution there is a clear divergence in yields emerging between good quality, well leased property and those with greater cash flow uncertainty.

For prime sub $5 million investment properties, yields have continued to tighten whilst yields for second tier properties are stagnant at best. For strong convenience retail properties, yields are generally in the 6% to 7% range but may achieve under 6% for strong well leased inner-city properties.

Good quality neighbourhood centres anchored by Coles and Woolworths are highly sought after with investment yields holding in the 5.75% to 6.75% range.

These centres are considered to be reasonably recession and future- proof. For sub-regional shopping centres, there are more sellers than buyers at the present time and markets are continuing to soften.

"The exposure of these centres to fashion and discretionary retailers is a significant drag on rents and saleability, however these market conditions open up opportunities and there are private investors scouring the market for opportunities to purchase and value add," the report found. 

There is however still the potential for ongoing diminution in rent levels for existing tenancies, and buyers are very cautious. Yields for these centres are showing a wide range and now touching over 8% for second tier properties.

In the CBD retail markets, conditions remain soft albeit that there is long term optimism in the market due to the major infrastructure projects underway.

Rents across all retail classes are stagnant at best and incentives are increasing, particularly where there is significant vacancy. The headwinds in retail are likely to be long term, with the likelihood of further pain.