Australian brick-and-mortar retail sector sees a glimmer of hope
Online spending in Australia drops as the retailing environment shifts post-COVID-19. Image: Canva.
  • Brick-and-mortar retail is seeing a resurgence in Australia.
  • Shopping centres are becoming destination locations.
  • The retail market is repositioning and repricing, making it more appealing to investors.

Australians are starting to patronise brick-and-mortar retail shops once again, as retailers have been using the post-COVID-19 period to pivot their offerings, indicating that there may be a glimmer of hope for a sector that has slumped throughout COVID-19, according to Knight Frank Research.

Post-COVID-19 repositioning leading the retail recovery

Online retail penetration around the nation reached 10% after its early growth in the 2000s, increasing further during the COVID-19 lockdowns. However, Knight Frank’s Australian Retail Review has found that online spending has now flatlined in Australia.

While the latest Auspost report recorded a whopping $353 billion in retail spending by Australians in 2022, online retail purchases have fallen in volume by 2.6% year-on-year.

Knight Frank head of research and consulting in Victoria and report author, Dr. Tony McGough, remarks that the retailing environment has undergone a substantial overhaul.

“The market has experienced shifts not only in spending patterns between different types of goods, and the flow through of this in occupancy costs to retailers, but also in forced or preferential changes in consumers’ choices of preferred centre types,” he says.

“However, the stalling of the online share for spending suggests that while households are now more comfortable utilising online retailing for smaller, non-discretionary spends, the re-opening of traditional retail is encouraging an uptick of retail spending in this area.

“The slowing in online spend shows that its expansion will be far more gradual than widely thought.”

Shopping centres transformed into destination locations

Knight Frank’s head of retail investment, Chris Maher, believes that retailers are resisting online dominance by heavily investing in a transformation of their offerings to attract more consumers.

Refashioning retailing into an ‘experience’, Maher argues that this trend is partly behind the recent increased patronage of brick-and-mortar shops.

“As we move on from the pandemic, shopping centres are accelerating an effective countermeasure to online shopping – which is making centres destination locations,” he says.

“For instance, Chadstone Shopping Centre in Melbourne has invested $70 million in new dining and entertaining facilities, including having ‘Holey Moley’ golf within its offering.

“Other centres now have basketball courts, bowling alleys and sports bars, as well as improved food malls, cinemas and evening entertainment to make the whole experience more of an outing.

“This repositioning, and where needed, repurposing, is reasserting bricks and mortar retail offerings after a period of significant online and e-tailing focus.

“In-store purchases have regained popularity, but so has click and collect, highlighting, in this omnichannel retailing world, the continued need for a physical store and the importance of making it an attractive offering.”

Return to office predicted to sustain retail resurgence

Maher states that the CBDs that suffered the most during COVID-19, such as Melbourne and Sydney, are beginning to experience positive retail recovery that will persist as workers return to the office.

“In Melbourne, Thursday footfall is now at 85% of the pre-pandemic levels, but more importantly, weekend and evening numbers are higher than in 2019 as the CBD comes to life outside of working hours,” he says.

“CBDs are also repositioning to present a more attractive offer to non-office workers, as tourist and student numbers recover more rapidly than daytime trade involving office workers.

“A spruce up of the offer and selective tenant choice is needed to help the CBD adapt to be less beholden to nine to five trade.”

Retail commercial property transactions

The report found that retail is responsible for 37% of commercial property transactions in the second quarter of 2023.

McGough comments that the heightened focus on industrial real estate, the enduring popularity of offices, and anxiety over COVID-19 have seen the retail sector’s investment activity dwindle to 18% in 2020.

Nevertheless, retail investment activity has been steadily climbing post-COVID-19.

“Indeed, investment volumes in 2021 and 2022 have been above the 10-year average as the retail boom, until recently, provided some degree of confidence in the sector.

“This has continued into 2023, and whilst overall activity in capital markets has been rather muted, the relative interest in the retail sector has remained.”

Maher opines that the market’s repositioning and repricing have made it more appealing to investors.

“Retail has always adapted as it faced headwinds, and in the last three years, we witnessed the retail investment hierarchy realign.

“The remainder of 2023 will see conflicting signals for the retail market as consumer confidence is yet to rebound, but there is also population growth driving demand for goods.

“However, the outlook for 2024 and 2025 is improving as rates stabilise, and the focus turns to potential cuts over the coming years, which should see an increase in retail spending.”

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