How COVID-19 has impacted the retail sector

At the moment, it looks as though King Street in Newtown and Darling Street in Balmain, in particular, have bore the brunt of enforced closures.

“Other usually strong retail precincts, including the CBD, Bondi Beach and Manly, have also been severely impacted by the abrupt halt of tourism and additionally in the case of the CBD, the closure of most offices,” Herron Todd White noted.

“Understandably, based on this lack of trade, tenants are seeking rental relief from their landlords. In addition to this, we are seeing significant increases in vacancy rates with tenants not renewing existing leases, and properties that were available pre-COVID-19 remaining on the market, with agents reporting little to no interest. There have been very few transactions from which to gauge how the rental market is performing. Some limited evidence has indicated significant reductions in the rental rates being achieved.

“A recent example is a property in Darlinghurst that only managed to achieve 30 per cent of the rental it had previously received in 2019.”

On a more positive note, Herron Todd White noted there are some locations that seem to have weathered the storm better than others.

“Macleay Street, Potts Point has seen many retailers continue to trade throughout the pandemic, and as a result, the increase in vacancy does not appear to be as significant as we have seen in other retail precincts,” it said.

“This can be explained by the demographic and typical trade base for these retail shops, which is generally considered to be mostly locals. Further, the high proportion of the population living in units in this area has meant that many have relied on local businesses throughout the pandemic. 

“Much like the near halt in retail leasing activity, sales activity is minimal, with often only properties that were on the market prior to the pandemic being transacted. That said, the majority of campaigns have been withdrawn from the market or moved from being an active auction campaign to an expressions of interest campaign. Therefore, it is also very hard to gauge where the market currently sits.

“We do note that there have been a few recent investment sales, indicating that there is some demand for well-located retail assets with strong lease covenants that are considered low risk.”