BWP Trust property at Brendale, in the Australian state of Queensland. (Photo: BWP Trust)

Lacklustre retail sales and the ongoing shift towards online retailing present formidable challenges for retail REITs in Australia, says S&P Global Ratings.

According to the ratings agency in a report published on 14 August, the Australian retail scene is currently mired with weak consumer demand, and this is underscored by low real wage growth in the country.

As such, retail sales will continue to be dampened, and S&P Global Ratings opine that margins evident in previous cycles are now unlikely to return.

“We expect legacy brick-and-mortar retailers in Australia to face an increasing battle in the fight for consumer dollars as efficient online and international retailers, such as Amazon, penetrate the market”, said the ratings agency.

“We may see further margin compression for existing retailers, in particular department stores, which need to continue to invest in infrastructure and IT systems to enhance their omni-channel offerings”, the agency added.

However it is not all bad news said S&P Global Ratings, noting that Australian retail REITs with good quality assets generally have the resources and trade catchment areas to evolve with changing consumer spending patterns.

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By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.