Another question that I pondered over fish and chips at the beach these holidays was the impact of online sales on demand for bricks and mortar retail space. I am a confessed online shopping addict. With developments like Myer stores projected downsizing and mass closure of Dick Smith Electronics outlets, the outlook for the property sector doesn’t look great.
I received an excellent update (link) on the impact of online retail on the demand for property in the retail sector from James Stewart of Ferrier Hodgson a few weeks ago. James writes a monthly series of updates (link) which are well worth reading for those of you interested in the retail sector and insolvency issues in that sector.
The update made three interesting points:
- the space requirements of retailers will fall, through a combination of greater online sales reducing in store sales, and a deliberate strategy by retailers to downsize stores and offer a greater convenience experience (think Apple stores).
- Australia is behind the curve – whilst traditional bricks and mortar American retailers are generating up to 18% of their sales online and growing, in Australia the figures are more like 1%;
- as the trend toward multichannel sales takes hold in Australia, landlords will face less demand for retail space and downward pressure on rents. Almost all landlords will be at risk from this development, although “destination” and best in class properties (Chadstone, Bondi, Chermside) will be insulated.
On a similar note, see a recent post by my colleague Sam Hopper (link) on the impact such developments might be expected to have on rent negotiations and valuations.