Prospects Bright for Australian Retail Property Sector in 2023 Amidst Slowing Real Estate Market

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Despite recent changes in the property market, Australia’s retail sector is anticipated to flourish throughout 2023, as suggested by a mid-year Retail Investment Outlook Report from JLL, a professional services and investment management company specialising in real estate (Henry Thai, 2023). On the other hand, the real estate industry in Queensland is facing a cooling phase with many agents leaving their roles due to declining property prices and a shift to more demanding market conditions (Owen Jacques, 2023).

While the retail sector grapples with stock shortages and vendor-buyer expectation mismatch, institutional offshore capital sources such as sovereign wealth and pension funds, along with Australian superannuation funds, are expected to contribute significant capital (Thai, 2023). As JLL’s Senior Director, Retail Investments – Australia, Nick Willis, mentioned, these investors are “likely to shift away from pooled wholesale funds into mandate funds for more direct control over liquidity,” thereby potentially driving increased activity in the retail market.

Meanwhile, the Queensland real estate sector has experienced a reverse trend. After a period of booming property prices, the market has cooled down, resulting in the exit of many real estate agents. Myles Blackwell, a former real estate agent, attributed the exodus to the increased challenges of listing and selling houses in the slower market. “When the times get tough and the houses aren’t selling, and people are holding back, and the affordability becomes unreachable for more people because the interest rates are a lot higher, then it is a real slog,” said Blackwell (Jacques, 2023).

Despite the challenges faced by the real estate sector, the retail market continues to be attractive due to factors such as reset income and values, according to Sam Hatcher, JLL’s Head of Retail Investments – Australia. He noted that the retail sector has seen “significant new sources of capital entering the sector in 2022” and anticipates asset re-pricing to be a key theme in 2023 (Thai, 2023).

However, both sectors face potential impacts from inflation leading to reduced discretionary spending, higher operating costs, and increased labour costs. “Increasing cost pressures for business will continue to weigh on retailer profitability in the near term and will consequently slow leasing demand and dampen rental increases,” Tony Doherty, JLL’s Head of Retail, Property and Asset Management – Australia, pointed out (Thai, 2023).

As we move further into 2023, both industries will continue to navigate market uncertainties and inflation impacts, while still presenting unique opportunities and challenges to investors and stakeholders. For now, the Australian retail market appears to have a brighter outlook than the real estate sector, with predictions of continued growth and resilience despite global economic pressures.

References

Jacques, O. Hundreds of real estate agents abandon industry as state’s booming market continues to cool. https://www.abc.net.au/news/2023-05-27/real-estate-agents-walk-away-as-housing-market-cools/102391422

Thai, H. Retail momentum to continue across remainder of 2023. https://thepropertytribune.com.au/commercial-real-estate/retail-momentum-to-continue-across-remainder-of-2023/