\n\tIn short, the company believes domestic retail turnover growth this decade won’t return to the golden age that ran from the mid-1990s<\/span> to the onset of the GFC<\/span>. The report from BIS<\/span> Shrapnel, titled Retail Property Market Forecasts and Strategies 2012 to 2022, indicates such a recovery over the next ten years is very unlikely given markets today are generating significantly lower rates of turnover growth than they were just a few short years ago. <\/p>\n \n\tBIS<\/span> Shrapnel predicts that the growth over the next five years will average just 2.9% a year, compared to the golden age mentioned above that generated turnover growth of nearly 5% per year on average in real terms.<\/p>\n \n\tIt’s not all doom and gloom, however, with BIS<\/span> Shrapnel Senior Project Manager and report author Maria Lee saying there should be at least some amount of improvement given what were some very subdued turnover growth rates in the past few years. <\/p>\n \n\t“However, while we expect turnover growth to strengthen through 2012\/13 and 2013\/14 in line with a strengthening Australian economy, growth will remain fairly subdued in the medium to long term,” she predicts.<\/p>\n \n\tRetail sales trends aside, one of the main purposes of the report is to better understand how actual turnover growth flows through to shopping centre<\/span> incomes and translates into investment returns. On this front, the data from BIS<\/span> look even worse.<\/p>\n \n\tAccording to BIS<\/span>, the online portion of the survey showed a dramatic rise this year in the online offerings of the top 20 domestic retailers. This has Lee expecting shopping centres<\/span> to book distinctly lower rates of turnover growth because of the increasing penetration of online shopping, which she notes will be compounded by the effect of additional retail floorspace<\/span>.<\/p>\n \n\tLee goes on to explain that online retailing actually has a double impact. There is the obvious effect of taking market shoppers out of the store, but Lee explains that there’s another effect that could be equally, if not more important.<\/p>\n \n\t“Consumers are using price comparison websites or apps on their mobile phones when in-store, and then demanding a price-match in order for them to buy there and then. This can have an impact on retailer profit margins,” Lee says.<\/p>\n \n\tPurchases by Australians from overseas websites are another issue that will impact local retailers and local retail space. Lee notes the growth of online spending overseas explains why consumer spending in total is growing at a solid pace, but traditional retail turnover growth has remained subdued. Add that to the fact that Australians are spending more time and more money overseas and we have an additional headwind<\/span> as long as the Australian dollar stays high.<\/p>\n \n\tChart I: Household spending and retail turnover, Australia<\/strong><\/p>\n \n\t \n\tYet with all this going on, construction of new retail floor space in Australia continues to outpace both population growth and real retail turnover growth. Lee finds this quite surprising given floor space demand growth is relatively muted due to the challenges facing development in the post-GFC<\/span> era.<\/p>\n \n\t“It means that, in real terms, turnover per square metre<\/span> is falling,” points out Lee.<\/p>\n \n\tIt’s a good thing for property owners that shopping centre<\/span> incomes are generated by tenants paying fixed annual rent increases of around 4% over the life of their lease. However, if rent is going up by 4% a year, but turnover is growing by less than that, then occupancy costs rise. Given specialty shop occupancy costs are already at an all-time high, it can’t be long before occupants either don’t renew their leases, or demand a cut in rent.<\/p>\n \n\tEither way, stay or go, rents go down. They drop if the tenant negotiates a better deal and they drop if the property manager has to attract a new tenant in an unattractive environment. As such, there’s widespread evidence of slowing centre<\/span> income, says Lee.<\/p>\n \n\tAll this adds up to BIS<\/span> Shrapnel seeing only a slim chance of improvement in the near term, albeit BIS<\/span> does expects centre<\/span> income growth to pick up a little from 2013\/14. Nevertheless, Lee notes shopping centre<\/span> income growth could be even weaker if the Australian dollar were to fall.<\/p>\n \n\t“The strength of the dollar has been instrumental in supporting retail profit margins at close to historic highs. Any substantial fall in the dollar puts profit margins, and retailer ability to pay rental increases, at risk,” says Lee.<\/p>\n \n\tThe weak prospects for income growth have unfortunate implications for total returns to retail property. The report notes that prior to the GFC<\/span>, total returns were solid thanks to the long term firming of yields, even when income growth was weak.<\/p>\n \n\tHowever, Lee thinks those days have has run their course and she doesn’t expect we’ll get back to 2007 yields before the next boom, which she thinks is unlikely to happen this decade. And without firming yields, slow income growth alone just won’t be enough to generate the type of investment returns investors have become used to.<\/p>\n \n\tOn BIS<\/span> Shrapnel’s numbers, returns for regional shopping centres<\/span> are between 9%-10% over a five-year and 10-year investment horizon. These sorts of unimpressive returns may well see investors switch their funds to stronger performing office and industrial property instead, concludes Lee.<\/p>\n \n\t \n\tIf you are reading this story through a third party distribution channel and you cannot see charts included<\/span>, we apologise<\/span><\/span>, but technical limitations are to blame.<\/em><\/strong><\/p>\n![\"\"](\"http:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/BIS-1.jpg\")
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