Sydney’s 2023 retail pipeline dominated by neighbourhood centres

Over 60% of the new additions will be from this segment.

The retail supply pipeline in Sydney remains soft with only 29,000 sqm forecast to reach completion by the end of the year according to JLL, and only a further 50,000 sqm set to come online in 2023. 

The pipeline up to 2023 is dominated by the construction of new neighbourhood centres (62%), followed by refurbishments and extensions to regional centres (23%) and CBD centres (15%).

Here’s more from JLL:

Retail trade proves resilient despite cost of living pressures

New South Wales’ retail trade continues to show strong resilience despite dampened consumer sentiment amid the cost of living pressure. Driven by discretionary spending, the state recorded 8.9% y-o-y growth and 1.5% m-o-m growth in August 2022 (ABS).

The retail leasing market remained subdued in 3Q22, as retailers faced heightening cost pressures. Anecdotally, an increasing number of shorter-term leases are being negotiated by risk-averse tenants from all retail categories, and landlords are trading off lease terms to maintain cash flow and occupancy.

Yields begin to soften across most sub-sectors in 3Q22

The rental declines recorded for the majority of sub-sectors throughout the pandemic continued to stabilise in 3Q22 with the exception of CBD rents which continued to record declines. However, the rental decline of -5% q-o-q was less than the double-digit declines recorded earlier this year for the CBD.

Yields have now begun to soften for most sub-sectors in 3Q22 as a result of changes in the macro-outlook and weakening investor sentiment.

Outlook: Debt costs to impact investment decisions

Discretionary spending is expected to come under pressure as cost of living pressures increase and interest rate rises fully hit consumers (likely to peak by year-end). As the outlook for interest rates has now been revised higher, with markets expecting the cash rate to exceed 4% by mid-2023, discretionary spending will continue to remain under pressure well into 2023.

Debt costs will likely continue to impact investment decisions and pricing, leaving the buyer pool limited in the short to medium term.