Sydney's retail market set to continue 2015 growth trend: HTW

The retail market in Sydney in 2016 is set to follow last year’s growth trend, with increased demand from investors continuing to drive the market, according to Herron Todd White’s retail outlook.

Properties with established retail tenants will be popular this year, particularly if the share market continues its downward trend, it says.

CBD and prime retail locations are still going strong with several transactions at sub 5% yields in the last half of 2015. The anticipation of changes to the CBD such as the light rail and George Street closure have investors looking to the CBD for returns and capital growth. This demand is likely to continue, according to them.

Rents are likely to remain stable in 2106 with evidence that an increase in prime locations is probable. 

Areas to watch are strong suburban strips that have embraced change. A good example is Oxford Street, Paddington which has been plagued by high vacancy rates and extended selling periods. While some pockets of fashion remain along this once popular strip, change is becoming evident with restaurants, wine bars and cafes now the focus. 

The main area for concern in the retail market is suburban strata lots. The increase in mixed-use development across the Sydney metro area has increased supply. Most of these are offered to the market on a vacant possession basis and therefore lack appeal for investors. Last year saw increased vacancy rates in some of the areas where this type of development is concentrated. 

This year does not look any better for this asset type, with more development occurring and little increase in demand, say HTW.

Bulky goods also remain a focus in Sydney with new residential subdivisions in the south-west, west and north-west of Sydney driving demand. 

The impact of the recent announcement that Woolworths will be selling or winding up the Masters Home Improvement chain is yet to be seen but may bring bulky goods under scrutiny. 

Overall the outlook for retail is positive with 2016 looking to be a year of further growth in capital values and rentals, particularly among the prime locations where investors are most active.