Perth’s retail transformation takes shape

THE next two to three years will bring a significant transformation of the retail market in the Perth CBD, as more than 40,000 square metres of retail space comes online.

The visual transformation is already beginning to take shape. Major retail developments such as Century City, Wesley Quarter, 140 William and Raine Square are progressing, with all four expected to come online in 2009-2010.

Along with those developments comes the entry of new national and international retailers into the Perth market, drawn to the state off the back of a burgeoning economy and increasing disposable incomes.

The CBD retail market has been in resurgence mode for the past one to two years. New high-end retailers including Tiffany & Co, Bally, Hugo Boss and Gucci have entered the market, a visible sign of the growing affluence in the state.

But, despite an already tight CBD retail market and strong rental growth, the slowdown in the global economy is trickling down to consumers who are beginning to tighten the purse-strings.

While most economists are tipping that WA will be less affected than the east coast by the global economic crisis, the state will not be completely immune to the slowdown.

In WA, as in other states, consumer sentiment and retail spending growth has softened in recent months.

With rising interest rates, petrol prices and general cost of living expenses causing a tightening of budgets since the start of the year, other factors such as share market losses and depreciating property assets have also been thrown into the mix in recent months.

All of these issues have combined to cause a drop in confidence and moves toward a more cautious approach to spending, particularly on non-essential items.

But while retail turnover growth has slowed in WA, the effect of the downturn on confidence has been less than other states.

According to the latest retail spending data released by the Australia Bureau of Statistics this week, retail turnover in WA for the month of September increased 5.6 per cent to $2.14 billion, seasonally adjusted.

WA bucked the national trend, with national retail turnover dropping 1.1 per cent from the previous month.

Turnover in WA is also higher than the same time last year, up 6.45 per cent on September 2007.

The result comes after a poor performance for the month of August, which recorded a 3.2 per cent drop in retail turnover.

WA consumers have continued to restrain retail spending since the end of 2007, reversing a trend of strong growth in WA retail turnover over the past four years driven by strong growth in wages, employment and population.

But leasing agents for some of the city's major retail developments remain optimistic, saying the Perth market remains strong despite the economic conditions.

CB Richard Ellis director Fred Clohessy, who is managing the retail leasing for Raine Square's 13,000sqm retail space, said enquiries from retailers have slowed in the past month.

However, he believes the Perth market is still strong.

"Enquiries reached their zenith late last year, early this year," he said.

'Given world events, [enquiries] have dropped back, but it's still strong."

"Last week I had three retailers over. This week another two, the phone is still ringing, Perth's still seen as a market of opportunity."

Mr Clohessy said rents, particularly for premium A-grade sites in the city, were still holding up strongly; however, the changing market conditions are forcing owners to get a bit more creative in their leasing deals.

"Before you'd get retailers with little to no incentive. Now owners are being asked to dip into their pocket a little bit...make the deal a bit sweeter," he said.

Colliers International associate director retail leasing Peter Millard said he hasn't noticed a major slowdown in the retail market, with enquiries continuing to come in from retailers interested in expanding their presence in the market and new retailers looking to enter.

Colliers is currently managing the retail leasing of 140 William, which is due for completion in early 2010 and comprises 6,500sqm of retail space on two levels.

Mr Millard said he had noticed that there was some caution at the higher, luxury end of the market.

He said there has been one higher end international retailer which has adopted a more cautious approach, putting their plans on hold for about six months to see which way the market goes.

Mr Millard believes the changing face of retailing in the Perth CBD will benefit all retail developments.

"The opening of Century City will help the city and add some sophistication to the Perth retail market, and that helps us all by painting a picture to national retailers that Perth can put on a good show," he said.

Rents in the retail market continue to perform strongly.

Jones Lang LaSalle research for the third quarter of 2008 showed that Perth recorded the strongest annual retail rental growth of all capital city markets.

JLL Senior Research Analyst Andrew Bouhlas said despite the fall in consumer confidence and general sentiment across the country, Perth retail rents continued to exceed the national average.

Figures for the September quarter showed that retail rents grew by an average of 7.3 per cent in Perth, with prime CBD and regional retail rents increasing by 9.6 per cent and 7.3 per cent respectively.

That growth has seen rents in the Perth high street malls range from $2,000/sqm to $5,000/sqm, with other shopping destinations in the CBD, particularly around the King Street area, reaching between $1,500/sqm to $3,000/sqm.

"Retailers in Perth are still benefiting from the local economy and consumer spending is still in positive territory," Mr Bouhlas said.

Property Council of WA executive director Joe Lenzo said there has been a change in dynamic in the WA retail market in recent months.

"If you'd asked me the question four months ago I would have been bullish about retail," he said.

"We anticipate some expansions won't go ahead because the cost of money is too high, and the banks and financial institutions are not very keen to lend money.

"The economy in WA is still reasonably strong, demand for retail is reasonably strong, but we'll certainly see a cut in discretionary spending and some luxury goods will suffer."