Current development rates falling far short of demand amid population boom
Australia faces a potential shortfall in retail accommodation as the country experiences unprecedented population growth, according to the latest Herron Todd White (HTW) monthly review.
The report cited figures showing that in 2023, the country’s population increased by over 650,000 people, highlighting a growing need for both residential and commercial spaces, particularly in the retail sector.
Current statistics indicate that the per capita retail requirement stands at approximately 0.9 square metres per person. To meet this demand, the HTW report pointed out that Australia should be constructing around 585,000 square metres of new retail space annually, equivalent to three to four major regional shopping centres.
However, the HTW report warned that the current development rate is alarmingly low, at roughly 20% of the long-term average, indicating a significant shortfall.
“There is no easy solution to this situation,” said Alistair Weir (pictured above), commercial director at Herron Todd White. “It is increasingly difficult to develop new retail accommodation in infill brownfield locations due to planning difficulties, traffic considerations, rapid increases in construction costs and competing land uses for such sites.
“Accordingly, new development in built up areas is increasingly being accomplished through expansion and increasing densification of existing sites. Such development is however complex and takes considerable time.
“Development in the growing outer areas is far more easily accomplished, and this is reflected in ongoing development of new neighbourhood centres.”
Weir added that the undersupply is likely to benefit existing property owners, as increased levels of trade drive leasing demand, rentals, and capital values. Despite this potential, the retail sector still faces significant challenges.
He noted that the COVID-19 pandemic caused a market correction with reduced rentals, higher vacancies, and lower capital values for sub-regional and regional centres. Although the market has stabilised, economic headwinds persist, according to Weir.
The Shopping Centre Council of Australia reported that as of April 2024, year-on-year retail trade increased by just 1.2%, lagging behind inflation and failing to keep pace with population growth and inflation combined.
“While there are still significant headwinds, the medium- and long-term prospects for retail property owners are strong,” Weir said. “Two key lessons of the COVID experience were that shopping is a favoured leisure experience and that people want to be able to touch and feel their purchases.
“The simple fact is that there will be an increasing number of people competing for goods with an increasingly tight per capita supply of retail accommodation.”
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