Australian Retail Property:Cyclical Headwinds Weighing on Retail REITs

Growing evidence of cyclical headwinds — We analysed the structural andcyclical headwinds the retail REITS face in Australian Retail Property: Sale ends …not so soon? (October 20). Since that time, evidence of cyclical headwinds hasstrengthened, given (1) another month of soft ABS sales growth, (2) a sharpdeceleration in tenant sales in the REITs’ September quarterlies, and (3) acontinuation of weak wage growth. Despite this, some retail landlords have ralliedas much as 5%, assisted by a c.20bp decline in bond yields. We see a salesrecovery as some way off, making a sustained re-rating of the retail REITs unlikely.

    Tenant sales remain key for retail landlords … but not in the way many peoplethink — While growth in tenant sales, and retail rents, can diverge for periods oftime, we continue to believe these measures are closely linked when analysed onthe right timeframe