This article is from the Australian Property Journal archive
RENTAL growth for bulky goods property will be lacklustre over the next five years, according to BIS Shrapnel.
BIS Shrapnel’s Bulky Goods Property report said the outlook for returns from bulky goods property is subject to a number of risks. Senior project manager and report author Maria Lee said the sector has been through an unusually weak five-year period.
“Although conditions are improving, the outlook, as far as rental growth is concerned, at any rate, is muted,” she said.
The report predicts lower growth over the next five years compared to the previous five years due to a number of factors, including consumers savings ratio, which is expected to remain relatively high (a falling savings ratio was a key driver of growth for a couple of decades up to the mid 2000s).
BIS Shrapnel also notes the lacklustre economic performance as the economy transitions to non-mining sectors.
And the growth to retailers located within bulky goods centres will be diluted because of the strong levels of new supply (largely Masters and Bunnings) and a growing online market share.
“Retailer ability to pay will be impaired by the falls in the $A to date and by further falls to come over the next few years.
“Bulky goods retailers tend to import a high proportion of the goods they sell, and import prices are rising. But it’s difficult to pass on these price rises to consumers, meaning that retailers are likely to experience a squeeze on profit margins,” she added. “The upshot is that we don’t expect rental growth to keep pace with the rate of inflation over the next five years. There is also a risk of rising vacancies,”
Although Lee predicts yield will firm, which could see some properties post strong returns.
“Nonetheless, the report indicates that some centres, generally the larger, dominant ones, could see their returns boosted through a firming of yields. Investment activity was buoyant in 2013 and BIS Shrapnel considers it likely there will be some firming of yields for the top centres.
“Even so, no centre is bulletproof, and smaller centres are vulnerable to competition from larger centres and susceptible to tenancy mix shifting from national chains to lesser known traders and/or from bulky goods to other uses.
“It’s a case of the average hiding a wide range of performance, and the challenge to centre owners and retailers is to identify which locations are vulnerable and extricate themselves from those.” Lee concluded.
Property Review
