What’s the Future for Retail Property?

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OVER THE PAST few years now, you would have been foolish to consider retail property as a worthwhile investment. And this has been the case since the global financial crisis when consumers began tightening their belts.

Anyway, having spent several weeks in Europe, I can report that things are no better over there.

Everywhere you go, you will see 30% to 50% price-reduction signs in shop windows. And unfortunately, most retailers still continue to struggle apart, perhaps, from food and restaurants.

Therefore, it makes no sense at all when you find local investors prepared to bid up prices at auction to where the passing yields become as low as 3.5% to 4% per annum.

How do you interpret that?

You would expect this to mean that there is a large rental increase looming. However, if you study the following graph, you will quickly realise that it’s unlikely to happen any time soon.

As you can see, the vacancy rates have risen in every capital city over the past six months. And basically, its only the regional areas which appear to be holding up fairly well.

Now thats not to suggest you rush out and buy retail property in country towns because, as youll appreciate, those retail markets are relatively small. And as such, things can change very quickly.

You need to be cautious

Currently, Australias household debt sits at around 190% of annual income which means it is at a record high. However, if interest rates stay steady at present levels, that should remain manageable.

The recent December trading figures suggest that consumer spending is unlikely to increase in the near future. And that is what will determine your future growth, as a retail investor.

Bottom Line: As a quick and simple guide, you probably shouldnt consider an investment into retail property until household debt declines to around 150% of annual income. And at that level, you might then enjoy some predictable growth going forward.

Commercial Property Made Easy

Chris Lang is a Commercial property Adviser, Mentor & international best-selling Author.
With over 40 years in the cut-and-thrust of Commercial property investing, he is able to share with you first-experience of what’s needed for you to succeed.
Why not visit his website at Commercial Property Made Easy

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