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Many of our clients have asked for a prediction of retail rents in 2023. Whilst I don’t have a crystal ball, retail rents will be a function of four key factors:
1. Location- The old adage in real estate has never been more important in retail. CBD locations are still undergoing structural changes due to the Pandemic. Many regional locations are booming on the back of the great sea/tree change post Pandemic. Neighbourhood shopping centres and some retail strips are benefiting from the phenomenon known as the hyper local economy as more people work from home and shop locally.
2. Usage- Retail uses are a major driver of rents. Supermarkets, mens fashion, footwear, electronics, furniture and take away food are still experiencing strong sales growth whilst other uses are moderating or declining.
3. Timing – We expect the first half of 2023 to be more difficult for some retailers than the second half, all things being equal. Interest rate rises, moderating residential property prices and global uncertainty will dampen consumer confidence and demand. This will help to dampen inflation which is expected to normalise towards the back of 2023 or early 2024.
4. Lease structures- Rental escalations linked to CPI increases vs fixed reviews will impact the overall rental values of leases over the short to medium term. Incentives are likely to remain high for new lease deals as access to finance and rising borrowing costs limit retailers capacity to fund store expansions.
So every lease deal needs to be carefully analysed using these four key themes. Best of luck to all for 2023!
Simon Fonteyn is an Executive Director of FLNT -the leading commercial real estate data portal in Australia incorporating Leaseinfo- Australia’s largest provider of retail leasing data. He is also a specialist retail valuer and founder of IPS Consultants www.ipsconsultants.com.au