Online sales threaten retail property
The rise of online retail has negative implications for the retail property market but will also produce key opportunities for savvy investors and modern retail operations, said Alphinity Investment Management principal Bruce Smith.
According to Smith, online retail sales have grown 25 per cent in the last 12 months.
Although these sales account for only five per cent of total retail sales, Smith said that if they continued to rise retailers' property requirements would change and have resulting effects on property funds and investors.
He said in the UK, where online sales account for 20 per cent of total retail sales, retailers have scaled down property sites in favour of bigger stores in strategic locations.
"One of the retailers told me that five years ago they would look to have 200 stores to build out the UK completely, the whole market. Now they need about 80 or so," he said.
Smith said the UK retail property market was awash with losers, but he also uncovered some surprising winners as a result of online retail sales increasing.
"If you're a wholesaler or a manufacturer and you're changing from serving a retailer to serving the consumer directly, that's a completely different set of logistics infrastructure you need, so there are…going to be a lot of obsolete warehouses around the place, but equally that's an opportunity for developers and owners of modern logistics infrastructure," he said.
He said retailers, such as Amazon in Germany which dodged the European crisis, growing 40 per cent over the past five years and DHL, Amazon's logistics provider, were examples of new opportunities for investing in property.
Smith said demand hadn't fallen for prime property sites but retail property was dangerous and recent moves by Westfield to sell its secondary property was a sign of things to come.
"I think Westfield is probably the smartest operator globally of retail property and they're basically selling all of their secondary property. They've…essentially sold their Australian/New Zealand portfolios, or at least half of them to the new trust (Westfield Retail Trust)," he said.
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