Vacancy rate falls after ‘more realistic’ landlord expectations

store open sign​Vacancy rates in Australian shopping centres have remained relatively unchanged despite mounting challenges in the retail sector, with property firm JLL’s latest research showing the average retail vacancy rate fell from 4.0 per cent in June 2017 to 3.6 per cent in December 2017.

JLL’s head of retail, property & asset management, Tony Doherty, attributed the decline in vacancy to more realistic landlord expectations.

“Landlords are acutely aware of the changes in the retail industry and the impact that it is having on retailer decision-making,” he said.

“Centre owners are taking a proactive approach to retailer engagement strategies to ensure occupancy rates are maintained.”

Doherty said despite certain retailers such as Oroton and Topshop Australia going into voluntary administration and others strategically closing stores in 2017, the research showed that shopping centre vacancy rates actually decreased over the second half of 2017.

“Store closures associated with retailers which went into voluntary administration were lower in 2017 than they were in 2016, so there was slightly less vacancy pressure in that regard,” he said.

“Nevertheless, owners and managers of shopping centres are having to work hard to attract and retain retailers and are actively trying grow their exposure to innovative retailers which will remain relevant in the fast-changing new retail environment.”

JLL’s head of retail research, Andrew Quillfeldt said the impact of store rationalisation strategies by retailers including Specialty Fashion Group, plus growing e-commerce penetration in Australia will accelerate the rate of divergence in the retail sector in 2018.

“There is still relatively positive demand for space within high quality shopping centres, but vacancy is more concentrated in secondary quality centres,” he said.

“The economic powerhouses of Sydney and Melbourne recorded the lowest retail vacancy rates in 2017. Some of the lead indicators for wage growth also point towards a recovery, which would be supportive of retail spending and retailer sentiment,” concluded Mr Quillfeldt.

According to JLL, the national CBD vacancy rate is considerably higher than a decade ago, driven by high vacancy rates in the Perth and Adelaide CBDs – both close to 10 per cent, compared with Sydney and Melbourne both below 3.5 per cent.

The regional shopping centre vacancy rate has been trending up slightly over a long-term view, but remains within the 1-2 per cent range, notably below the other major shopping centre sub-sectors. Growth in pop up retailers has helped keep the vacancy rate lower, particularly around the Christmas trading period.

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