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AUSTRALIAN CITIES HAMPER RETAIL DEVELOPMENT

By Steve McLinden

Demand for bigger and better shopping experiences has never been more acute in Australia. Retail has outperformed all other commercial real estate categories there for two decades now, and consumer spending is up 7 percent since last October.

But don’t get too fired up about retail opportunities in this thriving country of 20 million just yet, cautioned panelists at a discussion titled “Focus on Australia,” at the ICSC Spring Convention in May. One obstacle sits squarely in the path of Australian retail development: a uniformly strict city-planning process. Building restrictions take a far greater precedence over consumer and tax-revenue demands in Australia than in other Westernized countries, the panelists said.

“Planners have an enormous influence in Australia,” said Michael Baker, an international retail adviser at Melbourne, Australia-based Urbis JHD. “This intense concentration on the approval process relates to how Australia has chosen to position itself as a society … and how it handles traffic, safety and pollution issues.” Caillin Howard, director of Hames Sharley, an international business consulting firm, called the Australian planning process “much more of a strategic model than an economic model.”

Hence, there is very little new retail construction under way, and much of the country’s retail growth must come through the expansion of existing centers, says Baker, who pens Retail Perspectives, a bimonthly newsletter on global trends. “Property economics in Australia dictate that it is easier to expand regional centers instead of building new ones,” he said. The result is a less-upscale shopping environment, with many product and category voids to fill, sources say.

Australian retail stats are attractive, if not downright alluring. Retail space per capita in Australia is about 2 square meters, or just under 22 square feet, roughly equivalent to the U.S. But Aussie stores yield about $650 per square foot, roughly double that of the U.S. average — even though Aussie household income on average is three-fourths that of U.S. households. “Retail has also outperformed other commercial real estate sectors in Australia for the past 20 years,” said Philippa Kelly, a fund manager at Melbourne-based Centro Properties Group, one of the world’s top retail property owners.

The Australian economy is enjoying rapid growth as well, says Baker. “It didn’t experience a recession in 2001 as did the U.S. and truly hasn’t had a downturn since the early 1990s,” he said. “And there are no signs of one.”

Australia’s $1 trillion superannuation pension fund, the fourth-largest in the world, is bolstered by the country’s compulsory 9 percent employee salary levy and continues to drive economic momentum in Australia, says Kelly.

Australia has about 14,000 shopping centers (also called shopping precincts or shopping arcades), versus the estimated 50,000 in the U.S. Of those, only about 90 are considered regional, or “bulky goods,” centers, says Baker.

The typical Australian regional center measures 810,000 square feet on average and is almost always anchored by one of the two dominant supermarket chains there — Woolworths or Coles Myer — and just one or two department stores. Grocery chains, which account for 25 percent of sales, occupy nearly 15 percent of the retail space at such centers, says Ian Shimmin, director of Urbis JHD. Not surprisingly, research shows that a quarter of all retail customers shop these centers with the main objective of buying groceries. “As a result, our shopping centers are full of grocery carts,” Baker said.

Luxury brands are relatively rare in Australia, and the focus on discounting is minimal, even as demand-driven consumers would seemingly welcome U.S.-style category killers, says Kelly. Baker concurs, adding that supercenters and warehouse clubs “just don’t exist in Australia.”

The Spring Convention panel members were asked to come up with a retailer-restaurant wish list for Australia. Among the picks were Bass Pro Shops, Cheesecake Factory, Costco, P.F. Chang’s, Ross Dress for Less, Sam’s Wholesale and T.J. Maxx.

So-called sub-brand stores made the wish list too. “We have Footlocker, but we don’t have Kids Footlocker, Lady Footlocker, and so on,” Howard said. And no one has even attempted to consolidate the health food industry as Whole Foods has in the U.S., she says. “There are smaller operators who have grasped that, but no one has pulled it all together.”

Said Shimmin, “We would just like to have more things to do at our shopping centers and more reasons to go there.”