Retailers cautioned on investing in property

Small to medium-size enterprises in the retail sector should always think carefully about acquiring property for the dual purpose of using it for their business and building their retirement savings, says specialist commercial property lender, the Thinktank Group.

Thinktank’s Per Amundsen says it’s often a “sensible strategy” for SME owners to use their self-managed super funds (SMSFs) to buy their business premises, but for those in retail we would say “hasten slowly” before committing to buy right now.

“Much of the discussion in the property market in recent times has been around falling housing prices in Melbourne and Sydney, with the CoreLogic statistics again showing a 0.3 per cent fall for Sydney and a 0.6 per cent fall for Melbourne, with the national market down two per cent for the year to 31 August 2018,” he explains.

“But perhaps a more interesting trend has been the retail sector that has lost ‘considerable ground’ in income returns over the past year―in sharp contrast to office and industrial that have continued to improve, especially in Sydney and Melbourne.”

Amundsen says according to recent MSCI data, retail total return fell two percentage points from 10.4 per cent for the 12 months to June 2017 to 8.4 per cent in the corresponding period in 2018. While large retail had a better result at 10.7 per cent for the 12 months to June 2018, it was still one per cent less than the All-Property Index.

“More concerning was regional retail that only returned 5.6 per cent, down from 9.4 per cent in 2017 and with capital growth becoming slightly negative compared with a gain of 3.4 per cent in 2017.

“Especially interesting was the capital growth comparison of super regionals and major centres against neighbourhood centres, with capitalisation rate compression continuing to support super and major performance but has fallen away for neighbourhood.”

Amundsen says it’s too soon to draw any definitive conclusions from these numbers but says SME retail businesses would be “well advised” to keep a close eye on this property sector.

“The challenges facing retail have been well aired, and this must have an impact on this property sector. So, SMEs should weigh all their options before making a property acquisition in retail as part of their retirement income strategy.”