According to Lachlan MacGillivray, Colliers’ managing director for retail capital markets in the Asia Pacific, Australia needs more shopping centres.

According to Lachlan MacGillivray, Colliers’ managing director for retail capital markets in the Asia Pacific, Australia needs more shopping centres.

Despite the popular belief that shopping centres are losing out to the rise of online retailers, Australia can hardly be put into the same boat as the United States and other consumer economies for its shopping habits.

A new investor report from his company claims that not only is demand for shopping malls on the rise, but Australia will also be unable to meet the rising demands for retailers in the industry’s current state.

And McGillivray reckons that’s a sustainable outcome.

According to the report, the current population growth rate the nation will need an addition of more than 2.23 million square metres of retail floor space to maintain its current per capita metrics. But on the same terms, it would be unlikely that the nation will have enough supply with a “narrow immediate pipeline and scarcity of available sites within most major cities”.

Ironically, e-commerce – the very thing that people believe is sucking the life out of shopping centres is doing little to remedy the fact that Australia could barely meet its demand for these huge facilities often cited as one of the most energy intensive sectors in commercial property. The report states that online sales in Australia represented only 10.9 per cent of all retail turnovers, down from the 15.3 per cent peak during the pandemic.

A survey showed that delivery speed was the most important factor to 61 per cent of respondents when shopping online. And with one of the world’s tightest industrial and logistics markets where 71 per cent of new supply is already pre-committed, retailers are reinvesting back into physical stores to fulfill online orders for click and collect services and to engage in better customer support.

But why is this happening in Australia?

“The principle is that our shopping centres are much closer to where people live, and transportation brings you to a shopping centre on a far more frequent basis,”

MacGillivray told The Fifth Estate this week. “Overseas market is a very different to what we see here and one of the reasons is that in the US, the primary transportation around shopping centres is public transport and not private transport.

“You’ll find that the biggest retailers in Australia all have physical stores.”

Another factor, according to MacGillivray, was profit margins and ESG outcomes.

“It’s actually a lot more profitable to make a sale at a shopping centre than online – there’s a higher sale rate.”

In the US, online sales have a much higher return rate, which adds handling costs for the products which then can’t be resold because they may be out of season.

“It is also poor ESG outcomes because ultimately when that product can’t be resold, it just sits around or goes to waste. We don’t have enough data on online returns in Australia, but the most profitable sales in Australia are from shopping centres.”

What next?

MacGillivray recommends stronger land controls to ensure there is available opportunity for new shopping centres.

“Unlike global peers, the irreplaceable locations of iconic Australian retail centres and opportunity for additional uses will draw more customers and drive retail asset outperformance for years to come,” he said.

“It would be impossible for new developments to replicate the success of super and major regional centres, which have grown with communities since the 1950s, leveraging loyal consumer bases and frequent visitation.

“We are seeing increased domestic and offshore capital targeting this coveted investment class, which boasts an average of at least one trade area customer visit per week compared to one visit per month for their counterparts in the United States and the United Kingdom.”

The company expects increasing demand as a major undersupply loom, and brands with a brick-and-mortar presence will continue to experience benefits from both physical and online sales in their local area.

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