The Australian retail property market is showing promising signs of resilience and value, attracting renewed interest from offshore capital. After several challenging years, commercial property investors have reason to be optimistic, with interest rates potentially decreasing and asset prices on the rise. Australia’s retail sector has demonstrated a distinct combination of resilience and value compared to key peer nations. Despite facing threats from e-commerce, the pandemic, and inflation-induced rising bond yields, Australian retail has experienced shallower drawdowns and a faster recovery than markets in the US, UK, Germany, and Japan.
Comparisons of risk-adjusted returns, measuring the volatility of return streams before and during the COVID-19 pandemic, further highlight Australia’s strong performance. Pre-pandemic data indicated significantly higher risk-adjusted returns in Australia compared to the US, UK, and many European countries. Even when including pandemic volatility, Australia continues to record higher risk-adjusted returns than the UK and many European countries, positioning it as a resilient market on a global scale. This resilience can be attributed to several factors, including the slower adoption of online retail by Australian consumers, giving local retailers time to adapt and integrate omnichannel models.
Australia’s conservative approach to retail development, resulting in a market of controlled supply, also supports the sector’s stability. With less retail floor space per person compared to the US and a focus on redeveloping existing assets, Australian retail landlords benefit from high occupancy rates and stable rents. Investments in refurbishment and expansion of centres, including entertainment and dining precincts, have further enhanced the competitiveness of these assets. QIC, a long-term investor, focuses on creating and managing strong investment portfolios, offering investment strategies and real estate services.
With operational fundamentals improving, liquidity returning, and the potential for further rate relief, now presents an opportune time for core and value-add retail investment in Australia. The narrowing bid/ask spread and the increasing number of foreign investors on the buy-side signal growing confidence in the sector’s prospects. Fund managers are also looking to increase allocations to retail property in the coming year, recognising the resilience and value of Australian retail in the global market.
