The Australian retail real estate market might see some tough times ahead and be forced to fight for its survival, following the UK’s example where retail real estate assets are expected to fall in value of 20 to 70 per cent, Fidelity International believes.
According to the firm’s investment director, real estate, Adrian Benedict, those countries with high retail space per capita, weakening spending growth or structural change to gross domestic product (GDP) away from consumer-driven growth would be most at risk of market repricing.
Apart from the UK, the Australian and French retail real estate markets were expected to be more vulnerable to follow this trend.
The scenario for UK’s retail real estate portfolios would depend, to a large degree, on the nature and quality of those assets which might be driven by two factors.
The expected 10 to 40 per cent reduction in rents would make these assets more sustainable and affordable for retailers while a de-rating of the sector by 10 to 30 per cent would reflect the change in risk profile of the underlying tenants.
“The UK’s example shows how dramatically this could affect retail real estate portfolios,” Benedict said.
“Equity markets have deeply discounted the value of bricks-and-mortar retailers and their listed landlords whiles the direct real estate market has seemingly paid little notice.
“Bricks-and-mortar retailers are in a fight for survival. Online shopping is transforming retail but at a time when consumption is struggling and the role of consumption in growth is waning. Today’s developments are only the beginning: the speed of change is accelerating,” he concluded.