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Investment outlook: The future of retail

Investments
COVID 19 Coronavirus

August 19, 2020

Commentary on H2 2019 and a long-term view of the future trends of the Australian retail sector, in an environment free of extreme volatility.

Leading into COVID-19, the Australian retail sector was under considerable pressure. While the full impact of the pandemic is yet to be felt, structural and cyclical factors have already considerably diminished the sector.

Until recently, the local retail sector typically comprised the largest proportion of unlisted real estate in Australian investors’ portfolios. Primarily this has been due to retail assets delivering strong income and capital returns with low volatility and resilience through market cycles.

But times have changed. Even before COVID-19 shut down retail across the country, weakened consumer sentiment and spending propensity has resulted in declining profit margins for many bricks and mortar retailers. Indeed, the viability of many businesses has been called into question.

Likewise, investor sentiment on the sector has plummeted and there have been sizable redemption requests in Australian wholesale retail property funds in the last 12 months or so.

This paper provides specific commentary on H2 2019. Given the prevailing market conditions both domestically and globally resulting from the COVID-19 pandemic, our commentary on this is from more of a short-term lens.

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Contacts

Nick Kelly, CFA
Senior Investment Consultant

Audrey Simhi
Investment Analyst, Manager Research

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