Retail property is no longer glamorous

There is currently two schools of thought with regard to the future of the retail property market.

The first believes that after much hibernation, retail property is set to surge again.

The second believes that with the high dollar, and growth in online shopping, retail has much catching up to do.

Despite Australia having been mostly sheltered from the GFC, retailers (especially in strip shopping centres) have been doing it rather tough.

Before the GFC, retail property yields had plummeted – in some cases, as low as 3.5% per annum – with investors clamouring for what they saw as "sexy property". And they believed values would always increase dramatically.

Then, everything changed

Consumers became nervous, and decided to save or pay off more of their mortgages rather than spend on anything other than necessities. And this continued for the ensuing five years.

That is, until February 2013, when retail sales surged 1.3% — the largest monthly increase for 12 years.

Moreover, according to the ABS, it appears to be broad-based with strong growth in household goods and department stores (both up by 1.6%) and eating out (up by 1.3%).

Therefore, on the face of it, things appear to be looking rosy for the retail sector once more.

Yet, all is not well

Perhaps a snapshot from a typical strip centre in Fairfield in Melbourne would suggest otherwise.

According to the Herald Sun, "In Fairfield's trendy Station Street, some stores have shut and others have shifted online but, as Elissa Doherty reports, at least the op shop's thriving..."

This strip centre is punctuated by vacant shops with one boutique saying it all with a sign: "Closing down sale, going online".

Overall, the fashion and specialty shops are still struggling. Although food seems to be holding its own — presumably because everyone still needs to eat.

And sadly, this scene will merely be a reflection of what's occurring in most capital cities around Australia.

Bottom line: you simply need to go back to basics. Gone are the days of retail property being considered the glamour sector.

To be a successful investor, what you require is:

• an established retailer;

• running a profitable business;

• secured on a long lease; and

• paying proper market rental.

In other words, the precise criteria office and industrial investors have been adopting for years.

However, with the ongoing structural changes still occurring in the retail sector, that may prove to be a rather difficult task.

Chris Lang is an advisor to commercial property investors, sell-out author and regular speaker on how to invest in commercial property. You can visit his website Property Edge Australia to help you get the most out of your commercial property investing.