The discussion regarding the longevity of retail shops has been a long one. In the late 90s Ebay emerged and started what was to be a growing trend to online retail shopping. Both retailers and landlords were unsure about the future of brick and mortar retail stores despite online trade representing a minor portion of the market.

More than 20 years on we continue the discussion, however, today we see a higher volume of retail spending occurring via online platforms. In the five years leading up to the COVID-19 pandemic, we saw online retail trading increase an average 24 per cent per annum, highlighting the trend. However, this was off a low base, as in 2019 online sales only represented approximately 6.25 per cent of all retail turnover. While COVID-19 did much to speed up the online retail trade phenomenon, more than doubling its representation, online sales peaked at 14.36 per cent of all retail turnover in August 2022 during the Delta lockdowns. The latest data from the ABS for May 2022 highlights that this has shown steady decline and now only represents 10.68 per cent, which is below the initial COVID-19 jump in April 2020.

While there is a large portion of the market who continue to support online retail sales, we have seen customers flock back to their local centre to re-acquaint themselves with the in-person shopping experience. Delays in shipping have been a large deterrent for some shoppers, while the lure of quality food offerings and entertainment has brought vibrancy back to centres and strips.

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What does this mean for brick and mortar retail?

Prior to the pandemic we saw vacancy rises in some markets as a precursor to this online changing of the guard and, as a result, many segments of the retail market saw rental adjustments after many years of strong gains. Our changing shopping habits also resulted in an overhaul of the retail mix in our strips and shopping centres. For larger centres the focus moved to food and entertainment as department stores reduced their footprints, while smaller centres pivoted to providing greater convenience with a focus on food. Many retail strips saw a move away from fashion and soft goods, making way for greater food offerings and services such as beauty and medical.  

While the pandemic may be behind us, the remaining retail vacancies can be seen. Despite demand to purchase retail assets being high over the last 18 months, concerning occupancy levels has resulted in rental discounting as well as some churn across retail tenancies. We are also seeing more service providers look to retail assets as an alternative to office or specialised spaces, giving their customers a better experience in locations with parking or transport options. Medical and childcare are all examples of uses now seen in our centres and strips which were unseen many years ago. This is likely to be a growing trend as these are all services which cannot be provided exclusively online, however will impact rents.  Entertainment and food will continue to be a growing segment in our retail centres with new options emerging including sporting venues for Esports, VR, golf, climbing etcetera. 

Savvy retailers have used their brick and mortar stores to provide an immersive experience which translates into online sales, still capturing the sale but in a different format. This, however, causes some concern regarding the future of retail rents, leases, and their structure which we expect to be navigated over the coming years. 

While for some there is still uncertainty surrounding physical retail shopfronts, they are certainly not dead. A continuing change to the retail mix is inevitable, adaptive reuse for some vacancies and moderation on returns for landlords is likely, however, the reducing proportion of online retail sales continues to point to our want to be in store, which is good news for the future of retail.