RBA does the retail property bleed out

From the RBA today:

The pandemic has accelerated structural change and so has added to strains for retail commercial property

Retail commercial property in Australia was already facing a challenging environment prior to the pandemic. The margins of retailers, particularly bricks-and-mortar retailers for discretionary goods, were being compressed by intense competition from both large international and online retailers.[1] In addition to this reducing retailers’ ability to pay high rents, the shift to online retailing was decreasing the demand for retail commercial property premises. These forces had resulted in falling retail commercial property rents and prices (Graph B.1). The need for social distancing through the pandemic rapidly accelerated the trend towards online retailing in 2020. With Australia having a relatively low share of online retailing relative to other advanced economies, it is likely this shift will continue to depress demand for retail properties.

Graph B.1
Structural Change in the Retail Sector

As demand for retail tenancies declined through 2020, retail vacancy rates increased sharply (Graph B.2). They are likely to increase further with some department stores and large retailers announcing plans to further reduce the size of their floor space over the next couple of years. This will place further downward pressure on rents and valuations, which have declined by 6 and 15 per cent since early 2019 respectively.

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