Australia

This is 31% lower than the 10-year annual average.

Global capital investment volume to this asset class slipped by only 7% in 2020.

Volumes in Australia dropped by more than half in 2020.

The average prime yield midpoint in Melbourne compressed by 25 bps in 4Q20.

Canberra owes its long-term resilience to these 2 factors.

Inner city areas have higher vacancies, whilst those in outer ring suburbs remain low and rents for houses are growing.

Electrification is a crucial step to decarbonise the sector.

Perth is expected to lead the Australian housing market’s recovery this year.

One in five ultra rich individuals in APAC plan to buy a new house this year.

Commitments for owner occupier housing rose 10.5%. The January 2021 Lending to Households and Business figures released by the Australian Bureau of Statistics show that the value of new loan commitments for housing grew for the eighth consecutive month and reached another record high, according to the Real Estate Institute of Australia (REIA).

They were motivated by low interest rates and other incentives.

Stakeholders in Melbourne’s property markets have reason to be optimistic.

Melbourne's hotel occupancies declined to a historic low of just 20.4% in September 2020.

The first significant office project is a 60,000sqm commercial tower above Victoria Cross station.

The pipeline grew by a massive 68% over 2020.

Department store rationalisation will significantly contribute to rising vacancy and falling rents. Shopping centres were once synonymous with fashion, but now this is changing. According to JLL, fashion or apparel retailers still make up around a quarter of specialty tenancies across Australian shopping centres (excluding large format retail). There are over 15,000 specialty stores across the fashion sector, including both privates and national chains, domestic and international retailers, and also footwear and accessory retailers. Here’s more from JLL: Apparel retailers account for the greatest proportion of specialty GLA (gross lettable area) across CBD, regional and sub-regional assets. However, leasing demand from apparel tenants has been moderating for several years, and COVID-19 has accelerated many existing pressure points for this category of retailers. Fashion spending is highly discretionary and long-term patterns show Australians are allocating less of their household budget towards fashion-related purchases. Prior to the COVID-19 pandemic, the clothing, footwear and personal accessory retail category comprised 7.9% of total retail spending (2019, ABS). Fashion’s share of retail spending has gradually trended downwards from 10.5% recorded in 1985. This decline in fashion spending is largely due to price deflation, which has been driven by improvements in production efficiency and rising domestic and offshore competition over the past 20 years. This has resulted in the increased availability of cheaper items. Apparel retailing has also been the most volatile category of spending during the COVID-19 pandemic. In the month of April, apparel spending fell 53.6%, before rebounding 129.2% in May. As of August 2020, apparel spending has declined by 8.6% y-o-y. The Australian fashion industry is facing a range of challenges, as reflected by the growing number of insolvencies in the industry with nearly 600 fashion stores across major retailers exposed to voluntary administration in 2020 so far. The highly competitive environment is leading to price and margin pressure, which is impacting retailers’ ability to pay rent. Strong competition and supply chain disruption are also challenging the e-commerce space. Pure-play fashion-tech retailers are attracting high levels of capital, but investments are not always paying off. An analysis by McKinsey (2020) showed that a $100 investment in fashion-tech IPOs over the past two years would now be worth $73. Fashion e-commerce has also not been immune to voluntary administrations. Global online fashion retailer, Nasty Gal, raised USD 40 million in 2012, but then filed for bankruptcy in 2016. Similarly, Australian athleisure online retailer, Stylerunner, entered voluntary administration in 2019 before being bought by Accent Group, a listed retailer with 524 stores. Interestingly, omni-channel retailing has been part of Stylerunner’s recovery. The retailer is opening its first brick-and-mortar store (280 sqm) in an affluent neighbourhood precinct (Armadale, Melbourne) in late 2020, with further openings anticipated in 2021. Competitive pressures in the fashion industry have resulted in a number of apparel retailers seeking to downsize their networks as they migrate more sales online. The first is insolvency-driven rationalisation, where a business is closed or restructured with a reduced network, and the second is strategic rationalisation, where the retailer chooses to downsize its store network to improve profitability. While there is expected to be a significant amount of store rationalisation within the industry, the stores that retailers retain will look and feel very different to their traditional format. One of the largest challenges that retailers face is blending online with offline, both in terms of how customers interact with stores and how store performance metrics are assessed. The success of performance tracking will in turn influence leasing demand and rental affordability. The apparel industry has become highly dynamic, which has disadvantaged many legacy retailers that hold a significant amount of Australian shopping centre floor space. COVID-19 has accelerated the financial impacts of these pressures and an increase in retail vacancy is anticipated as these retailers rationalise space, either because of formal restructuring or store network rightsizing. Department store rationalisation will also significantly contribute to rising vacancy and falling rents. JLL forecasts that regional specialty rents will decline 11.4% peak-to-trough in the current cycle, implying a negative re-leasing spread of 23.4% for five-year leases with 4% fixed annual increases. With the future of larger shopping centres likely to be centred on human interaction and experience, there are a number of backfill uses for former fashion store space that will support the transformation of the industry. Fashion is not completely leaving shopping centres, but it will be a smaller component and look entirely different as brands strive to provide convenience and experience. Read the full report here.