Property Australia

Repurposing retail space as department stores downsize

PROPERTY AUSTRALIA December 17, 2019

Department and discount stores are expected to downsize by more than 769,200 sqm over the next three to seven years, finds fresh JLL research. What does this mean for shopping centre owners?

JLL research figures show that the consolidation strategies recently announced by department stores Myer and David Jones, and discount department stores Target and Big W, equates to 7.1 per cent of existing total stock.

JLL estimates there is potential for department and discount department stores to downsize by up to 1.5 million sqm or one third of their total network floorspace.

The department store sector has been challenged in recent years, with sales growth lagging other major retail categories. Space reductions are expected by reducing the size of existing stores and by closing others entirely.

JLL Research-1

Sam Hatcher, JLL’s joint head of retail investments in Australia, urges owners to “start thinking differently about their assets”.

“A more creative and flexible approach to changing the tenant profile and introducing new space uses will be required to transform and evolve shopping centres.”

JLL suggests one “backfill” solution is German ‘hypermarket’ Kaufland, which has already acquired 23 sites to build freestanding stores of around 4,000 to 5,000 sqm each.

Co-working is another solution. The redevelopment of Raine Square in Perth features a 3,000 sqm co-working space, while Vicinity Centres is repurposing the former Myer space at Emporium Melbourne for a coworking provider.

Other solutions include childcare and health services, last mile fulfillment centres and competitive social entertainment such as e-sports and virtual reality “experience centres”. The largest esports venue in the southern hemisphere is set to open in Emporium Melbourne in 2020, taking over the former Topshop space.

According to Hatcher’s co-head of retail investments Jacob Swan, the low rent paid by department and discount department stores relative to other retail tenants provides a “low threshold” to explore repurposing options.

“Mixed-use developments provide the biggest value-add opportunity for landlords. They diversify the income stream while not creating additional competition for existing retailers and drive customer engagement and ultimately, asset values.”

The potential for adding mixed-use to a retail centre depends on several factors, including layout, location and structure, Swan adds.

Andrew Quillfeldt, JLL’s senior director of retail research in Australia, expects a “new form of supply” over the next seven years. This “may result in many of the proposed extension redevelopments being scaled back or postponed”.

“The amount of space reported as potentially being handed back by department stores is more than four times the size of the current development pipeline for regional and sub-regional shopping centres,” Quillfeldt concludes.