Perth retail market continues to experience increasing vacancy rates: HTW

Weakness in discretionary spending habits of consumers continues and looks set to stay in place throughout 2017, according to Herron Todd White’s latest report.

The property valuation firm says that retail owners remain under pressure to maintain occupancy in their assets, with evidence of increasing incentives in this market.

"Vacancy rates increased across the board throughout the last year however remain lowest in the Hay and Murray Street Mall locations, followed then by regional shopping centres.

There is however an increasing trend towards tenants on short term leases, holding over and pop-up style shops," the report stated.

HTW advises that construction activity in regional and sub-regional sector will need to increase over the coming years.

"Over the next few years construction activity across the regional and sub-regional centre sector will need to increase as owners seek to grow and reposition their assets," the report advised.

Retail as an asset class is in the midst of a changing paradigm with many assets under utilised or failing to meet the expectations of consumers.

The integration of better child care, office, health and entertainment offerings needs to be considered to keep assets front of mind for the ever more discerning consumer.

"However increasing vacancies, stagnant or declining rents along with a moderating population growth have created more uncertainty for the timing of some of the mooted major centre expansions.

Recently, rising neighbourhood centre space combined with subdued demand has caused rental rates to deteriorate.

Neighbourhood centre rents declined by approximately 10% during 2016 to average around $600 per square metre.

Retail as an asset class remains on the radar for many investors (institutional, syndicates and private high net worth individuals) as it provides a relatively secure cash flow or upgradable investment options," the report stated.

This has resulted in investors accepting lower internal rates of return which is flowing into tighter yields for quality assets.

“We have noted a marked increase in eastern states based private investors who are willing to accept far lower yields for assets than local investors are prepared to accept,” the report stated.

The focus of the next WA government needs to be on investment in infrastructure which will support the shift from Perth being a mining headquarters to becoming a bona fide tourist destination.

"With that investment from government will come private development opportunities in the form of hotels and tourism based centres which will in turn drive the demand for world class retail opportunities, which will be the impetus to trigger retail expansion.

Government and industry need to work together on this solution otherwise the outlook for retail in Perth on the whole will remain bleak," the report advised.