The latest survey of retail centre managers conducted by Jones Lang LaSalle points to a slight improvement in sentiment across 89 retail centres, following the interest rate cut in May.
“Despite the ongoing challenging trading period for retailers, the sentiment of centre managers had improved from the previous survey conducted in February,” Australian head of property management at Jones Lang LaSalle Richard Fennell says.
“Fifty-seven per cent of centre managers expected some growth in sales over the next 12 months compared to 49 per cent in February 2012.
“The sentiment of centre managers is perhaps best described as ‘cautious optimism’. Those centre managers expecting turnover growth in the next 12 months primarily expect growth of less than three per cent.”
Director, research and consulting Australia, David Snoswell believes The Reserve Bank of Australia (RBA)’s 50 basis point cut in the official cash rate in May is the primary reason for the modest improvement in centre manager sentiment.
Consumers, however, still remained very cautious and are going to be wary of spending the savings from lower mortgage payments on retail goods, at least in the short term.
“The biggest concern for centre managers remains the economic outlook, with 46 per cent of those surveyed rating this as having the biggest negative impact on turnover performance,” he says. “However, this has improved when compared to the February survey, where 60 per cent rated this as the highest factor.
“Competition from online retailing was a concern for 26 per cent of centre managers, although in most cases, its impact is expected to be minor,” said Snoswell.
The retail outlook for 2012 is for below trend growth in retail trade with stronger growth not forecast until 2013.
“The survey results showed the key factor expected to improve performance of individual centres over the next 12 months was changes to tenancy profile,” Fennell said.
“Those retail centres that have deliberately changed their tenancy mix, or attracted new tenants with strong customer appeal have reported solid growth during a challenging trading period. However, the ability to improve tenancy mix is constrained by limited demand and the need for an injection of capital before tenants commit.
“A number of strategies are currently being employed by landlords and centres to manage performance until conditions improve.
“Alternative lease terms are being considered in order to accommodate new or struggling retailers. This may include shorter lease terms and percentage rent deals. Centre managers have also reported some rent reversion at the end of the lease period in order to retain tenants.
“There is also a higher expectation on the part of tenants for incentives. These include both rent-free periods and fitout contributions, with tenants having limited capital to cover the cost of fitouts.
“Tenancy mix and new investment in the form of refurbishment were again highlighted by many centre managers as key to driving solid growth in a challenging environment.
“With clothing and footwear continuing to struggle, sub-regional shopping centres are re-focusing their tenancy mix to better reflect the needs of their catchment and growth sectors. This includes specialty food, dine-in cafes/restaurants, and a range of services that bring repeat customers to the centre,” says Fennell.