The household goods sector is leading the way in improved retail spending, indicating strong conditions for large format retail as Australians spend up amidst the low interest rate environment and strong housing market.
In the twelve months to March 2015, our spending on household goods improved by 8%, the highest of all retail categories. Sales volume growth has also been strong in the category, rising by 11.3% over 2014, the strongest annual growth rate for the sector in over 10 years.
“With low interest rates and a strong housing market, Australians are investing more in their castles,” said Michael Bate, Head of Retail at Colliers International. “This is great news for our large format retail sector, which is enjoying favourable conditions as hardware, garden supplies, electrical goods and furniture are all back in vogue.”
According to Colliers research, rentals in the large format retail sector have remained stable over the past six months, with select markets starting to see some upside in rents. The pipeline of new supply within the large format sector has been dominated by the hardware category. “There has been an improvement in the vacancy rates in the large format sector,” said Tony Draper, National Director of Large Format Retail at Colliers International.
“Across Sydney and Melbourne, the vacancy rate in our large formate centres is at 1.6% and 3.3% respectively, down from 3.8% and 6.3% at the same time last year. This is likely to drive some rental growth over the next 12 months.According to Mr Draper, the strong growth across the sector has been driven by rising house prices and consolidated by a lift in housing supply and transactions,and is also reflected in the strong recent performance of hardware retailer Bunnings. Overall the retail sector has a fairly bright outlook, according to the report’s author, Nora Farren, Director of Research at Colliers International.
“The number of shopping centres currently under redevelopment, about to commence construction and in the planning phase has increased markedly,” said Ms Farren. “The pace of supply is now anticipated to be above long-term average levels over the next few years.” Major institutional owners currently have over $10.5billion worth of retail development in the pipeline, across around 95 projects. The regional shopping centre sector will account for circa $7.8 billion of the forecast supply.
“As a percentage of total stock by sector, we expect the supply of regional shopping centre floor space to provide additions equivalent to around 10 percent of the existing market over the next three years,” said Ms Farren. “Moving forward we expect that supply additions will largely be absorbed by growth in retail sales turnover.”
Retail sales in 2015 are expected to continue to grow steadily, at similar rates to 2014. Spending will be supported by low interest rates, a lower Australian dollar (meaning less offshore online shopping and travel overseas) low fuel prices and the benefits from a strong housing market underpinning demand for household goods and large format retail, but also for more discretionary spending.