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Australian Property Insights
Retail evolutions: Shops to warehouses
June 2017
The rise of e-commerce in Australia and the coming of Amazon is not all bad for
Australian commercial real estate.
It creates an opportunity for small retailers and is driving demand for
storage/warehouse space.
Mobile technology and the arrival of international retailers like Zara and Uniqlo has
sped up the evolutionary process in the Australian retail environment and the arrival of
the retail giant Amazon is likely to cause further disruption.
Amazon is not just a mega retailer, it is also a marketplace or platform for small
retailers. Third-party sellers accounted for 50% of Amazon’s paid unit sales in Q1
2017, up from 26% 10 years ago.
Expansion of third-party sellers has been rapid, with Amazon’s income from services
to third-parties lifting by 43% between 2015 and 2016.
The rise of e-commerce in Australia has helped drive demand for storage space. Both
the large scale logistic complexes as well as smaller storage facilities currently used by
traders on platforms like eBay and Gumtree.
If Australian third-party sales on Amazon increase at a similar rate to the US, demand
for small storage/warehouse space in Australia is likely to continue to rise.
Figure 1
Third-party seller share of paid units sold on Amazon platform, 1st quarter 2017
Source: Statista; Cushman & Wakefield Research
2/06/2017
Contents
Retail evolution 2
Change had favoured scale 2
E-commerce and the erosion
of pricing power 2
Amazon is coming 2
YouTube entrepreneurs 3
Shops to warehouses 3
Author
John Sears
National Director, Research
+61 (2) 8243 9973
Contacts
Dominic Brown
Head of Research, Australia and New
Zealand
+61 (0) 431 947 161
Tim Cassidy
Director, NSW Head of Industrial
+61 (0) 412 115 051
Andrew O’Connell
Head of Industrial Sales & Leasing,
Victoria
+61 (0) 409 944 220
Michael Callow
Industrial Director
+61 (0) 417 147 528
0%
10%
20%
30%
40%
50%
60%
26%
50%
Australian Property Insight June 2017
cushmanwakefield.com.au 2
Retail evolution
Evolution trends often favour size until a change comes along
that gives the small and nimble the advantage over the large and
slow.
The retail sector has gone through a similar evolutionary
process over the past 100 years or so. Developing from sole
traders in relatively small ‘high street’ stores to supermarkets,
shopping centres and more recently, international retailers in
‘big box’ stores or mega malls. However, a number of structural
changes such as a trend to higher density living, multi-income
households and online retailing are having a negative impact on
many ‘bricks and mortar’ retailers, providing opportunity for
niche traders in the disrupted sector.
Figure 2
Retail evolution
Source: Cushman & Wakefield Research
Change had favoured scale
As Australia’s major cities have grown, the retail sector has
adapted to meet the changing needs and lifestyles of the
population. Initially evolving from small traders on high streets
to supermarkets, big-box stores and mega malls.
Pre-cars, suburbanisation occurred along main transport routes
such as train and tram lines. Local high streets were dominated
by small retailers generally supplying essentials. With
suburbanisation and the widespread use of cars,
supermarkets, shopping centres and large format centres have
come to dominate Australia’s retail landscape.
Bigger retailers have generally had an advantage over smaller
ones. Using their size to reduce costs and increase product
range. A local example has been hardware supplier Bunnings,
which has come to dominate the category through their
‘hardwarehouses’. Most recently, international apparel retailers
such as Zara, H&M and Uniqlo have enjoyed success in
Australia. Their global scale has allowed them to provide a
wide range of products at reasonable prices. This has come at
a cost to some local retailers such as Herringbone, Pumpkin
Patch and Payless Shoes that struggled in the changing
market conditions.
1 http://www.businessinsider.com/amazon-accounts-for-43-of-us-online-retail-
sales-2017-2/?r=AU&IR=T
As cities have continued to grow, consumer needs have also
evolved. Higher density living and mobile technology have
resulted in a rise in demand for convenience retail, prepared or
semi prepared meals and e-commerce. This has allowed an
opportunity for small traders in the food and beverage sector
as well as online through websites and third-party trading
platforms like eBay and Gumtree.
E-commerce and the erosion of pricing power
The arrival of international retailers plus e-commerce has sped
up the retail evolutionary process. For many years, Australian
retailers had relied on their relative isolation from global
competition to enjoy customer loyalty and pricing power.
While e-commerce currently only accounts for a little over 7% of
Australian retail turnover, a bigger impact on the local retail
environment has been the erosion of pricing power. Mobile
devices have allowed consumers to rapidly compare prices and
find the ‘best deal’. As a result, inflation for many retail
categories has been relatively soft. Figure 3 indicates the annual
price growth for many retail categories has been very weak or
negative over the past three years. Without price growth retailers
must rely on volume expansion to achieve sales growth. In
contrast, services such as health and education have been able
to achieve relatively strong price growth.
Figure 3
Inflation, three year CAGR (%)
Source: ABS; Cushman & Wakefield Research
Amazon is coming
While global retailers such as Zara and H&M have had an
impact on the Australian retail landscape, an even larger
merchant, Amazon, is likely to cause further disruption. When
measured by market capitalisation, Amazon is the largest
retailer in the US, around twice the size of the next biggest, Wal-
Mart (Table 1). Amazon’s size is a function of its dominance of
US e-commerce and in 2016 it accounted for 43% of all online
sales1.
Small traders
High streets
National retailers
Supermarkets
&
Shopping centres
Small traders
Online,
F&B, Convenience
International retailers
Big box & Mega malls
Retail
evolution
Bigger
BiggerSmaller
-10% -5% 0% 5% 10%
Communication
Transport
Clothing & footwear
Household appliances, utensils & tools
Recreation & culture
Utilities
Furnishings, household eq & services
Food & non-alcoholic beverages
CPI
Insurance & financial services
Housing
Education
Health
Domestic & household services
Alcohol & tobacco
Australian Property Insight June 2017
cushmanwakefield.com.au 3
Table 1
Top 5 US retailers by market capitalisation, 31 May 2017,
RETAILER MARKET CAPITALISATION, US$ BN
Amazon 475.40
Walmart 238.28
Home Depot 182.32
Walgreens Boots Alliance inc. 87.58
Costco 79.20
Source: Yahoo Finance; Cushman & Wakefield Research
Much has been written about the potential impact on the
Australian retail market from the arrival of Amazon, with most of
the commentary highlighting a potentially negative impact. But
while Amazon is a giant retailer, accounting for the majority of e-
commerce growth in 2016 (Figure 3), it is also a market place or
platform for third-party sellers.
Third-party sellers in Q1 2017 accounted for 50% of paid unit
sales (Figure 1). Revenues from services to third-party sales are
also Amazon’s second largest source of revenue, US$23 billion
in 2016, a 43% gain on 2015. This growth indicates the rapid
rise of smaller or third-party sellers who often operate out of
homes, garages or warehouses.
Figure 3
Share of E-commerce growth in 2016
Source: Slice; Cushman & Wakefield Research
YouTube entrepreneurs
Growth in third-party sellers on Amazon has been associated
other internet applications with users creating links to their
Amazon ‘stores’. One such application is YouTube, which has
allowed individuals access to a potentially vast audience on an
almost infinite range of subjects. With around 1.3 billion users
reported, 300 hours of video uploaded every minute and
almost 5 billion videos watched every day2.
An interesting trend is that after establishing a following, many
‘Tubers’ then sell products they use or endorse on their own
websites or apps like Amazon. Implying, social media can be a
significant source of new small traders, many of whom may
require storage space for their products rather than traditional
‘bricks and mortar’ stores.
Shops to warehouses
Demand for small storage/warehouse space (20 to 200 sq m),
in Sydney has risen strongly in recent years. Demand has
been driven by a combination of factors. Higher density living
associated with apartment development has meant some
households have looked to separate facilities for their storage
needs, while tradies catering to the booming housing market
have also sought additional storage space. But demand has
also been supported by small e-commerce retailers.
The strong demand for small storage/warehouse space is
indicated by significant price rises. Small strata spaces in
Sydney, around 20 sq m, in 2014 and 2015 were trading at
around $4,000 to $5,000 per sq m. The same spaces trading in
2017 for up to $8,500 per sq m. Larger premises, 100 to 300
sq m increasing from around $2,500 to $3,500 per sq m to
$4,000 to $5,000 per sq m. Yields on similar properties
declining from around 7% to 5%.
Summary
The arrival of Amazon will further shakeup the Australia retail
sector and should support the expansion of small online traders.
If Australian third-party sales on Amazon increase at a similar
rate to the US, demand for small storage/warehouse space in
Australia is likely to continue to rise.
2 https://fortunelords.com/youtube-statistics/
53%47%
Amazon Other merchants
Disclaimer
The information in this material is general in nature and has been created by Cushman & Wakefield for information purposes only. It is not intended to be a complete description of the markets or developments to which it refers. The material uses information obtained from a variety of sources which Cushman & Wakefield believe to be reliable however, it has not verified all or any information and does not represent, warrant or guarantee its accuracy, adequacy or completeness. Any forecasts or other forward looking statements contained in this material may involve significant elements of subjective judgment and assumptions as to future events which may or may not be correct and are beyond the control of Cushman & Wakefield. Cushman & Wakefield is not responsible for any loss suffered as a result of or in relation to the use of this material. To the extent permitted by law, Cushman & Wakefield excludes any liability, including any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this material. All expressions of opinion included in this material are subject to change. © 2017 Cushman & Wakefield. All rights reserved.
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