How to invest in retail – and avoid the challenges of a consumer downturn

Like retail but nervous about headwinds in the sector? There could be an alternative exposure that is looking attractive.

There’s been much talk about woes in the Australian retail sector. In a tougher economy, discretionary spend is the first to get cut – and companies like Baby Bunting and Harvey Norman typified this (despite the odd company that has come out unscathed – so far). Even Woolies and Coles bemoaned the challenges of inflation on consumers, with theft up and both chains investigating options to tighten controls.

It’s clear that inflation and the rate hiking cycle have created some headwinds, but that doesn’t mean the sector is necessarily one to steer clear of. One answer might be investing in retail centres themselves.

Linda Rudd and Mark Vonic of Realside Property see significant opportunity on this front, with an institutional need for liquidity opening up high-quality, sub-regional retail assets at discounted pricing.

Think 10,000-30,000 square metre retail facilities with a supermarket and a large discount department store. It can be metropolitan or regional – the term sub-regional simply refers to size.

“The reason that we’re quite interested in this sector at the moment is that they often sit on quite under-utilised parcels of land, very large parcels of land that serve as car parking. 

We see them as real genuine infill opportunities and a sector that creates a lot of optionality and interest from our perspective.

Finally, it’s actually repriced to a point where it is most attractive from a yield perspective,” says Vonic.

It’s retail exposure in a different way – after all, investors in this form of property can benefit from rental yield, with quality assets demanding higher yields. It’s not necessarily just dependent on retail brands either, with the option to lease to healthcare companies, gyms and even childcare providers.

In this episode of The Pitch, Rudd and Vonic discuss the opportunity in this space, along with Realside Property’s newest acquisition – Maddington Central Shopping Centre.