In the context of planning goals, the need to maintain vibrant centres that can deliver a range of services and employment opportunities is critical. This briefing seeks to highlight the vulnerability of suburban centres to the changing retail environment, and the social and economic consequences.
Briefing in full
The majority of jobs in suburban centres in Australia are in the retail and food and hospitality sectors. Therefore, ongoing declines in ‘bricks and mortar’ retailing in Australia are likely to have significant implications for the function of the current centre networks.
In recent years, ‘bricks and mortar’ retailers in Australia have experienced significant challenges, with more recent limitations on people’s movement (and various other restrictions) limiting these retailers’ abilities to operate at capacity. In contrast, online retailers have thrived, with this form of retail becoming a far more appealing prospect for a significant number of Australian consumers. As we move beyond 2021, these challenges will only increase.
In coming years, centre hierarchies will come under pressure as metropolitan centres compete for a diminishing quantity of per capita ‘bricks and mortar’ retail expenditure. To see this as nothing more than ongoing evolution in consumer behavior ignores the fact that strong and viable centre networks deliver a range of other benefits. A decline in the role of centres in the economic and social lives of local residents would come at a significant cost.
The purpose of this briefing is to set out how broader trends will coalesce with the impacts of COVID-19 to place unprecedented pressure on the ongoing viability of Australia’s centre networks. This briefing seeks to highlight the vulnerability of many of our suburban centres to the changing retail environment, and the serious consequences of inaction.
Why do we need local/activity centres?
Retail centres are vital to the economic, social, and political fabric of Australian communities. Flourishing local centres are an important source of suburban jobs and are home to hundreds of thousands of small businesses. In addition to their economic role, they are also social places that bring us face to face with ‘the other’. In this sense, they can be seen as important institutions that play a role in supporting democratic and egalitarian values.
By bringing together disparate groups, local centres can be places where ideas are exchanged, where the growth of social networks are fostered, and where prejudices are challenged. As our communities grow older and single and dual person households become increasingly common, vibrant networks of activity centres will become an important tool in staving off loneliness and supporting mental health.
In short, a reduction in the role of centres is much more than an economic issue.
As has been discussed previously, the retail sector faces challenges going forward. Many of these were already present prior to the 2020, though most have been exacerbated by the pandemic. These include:
- Growth in online expenditure. As technology improves and online providers get more savvy, the volume of expenditure shifting online is increasing rapidly. For example, total online expenditure has grown from $1.11 billion in November 2016 to $2.12 billion in November 2019, and $3.63 billion in November 2020 (ABS 2020). The pandemic, by forcing consumers online, will undoubtedly result in a permanent shift of expenditure patterns. Large retailers are likely to respond to these changed preferences and secure their future revenues by investing in online systems (see for example, Woolworths’ recently-announced Queensland ‘dark store’, an online shopping warehouse).
- Low wage growth. Low productivity growth evident prior to the pandemic is likely to endure, with this linked directly to low wage growth. Stagnant incomes are likely to hit discretionary household expenditures, such as retail.
- Shift in preference towards experiences. There has been a cultural shift in recent times (particularly among younger generations) reflected in shifting preferences towards the purchase of ‘experiences’ over physical goods (i.e. retail). Although COVID-19 has temporarily made the purchase of many ‘experiences’ impossible, as the world returns to normal, this trend is likely to become reestablished.
- Rising housing costs. Housing costs continue to rise, meaning Australians are having to direct a greater proportion of their incomes toward mortgage repayments and rents, and away from discretionary purchases.
- Increased tendency for households to save. In general, economic uncertainty induces households to save a greater proportion of their income, with less available for retail purchases. In common with what occurred during other economic ‘shocks’, household savings grew significantly during the pandemic. With economic uncertainty likely to endure, savings rates could remain relatively high for the foreseeable future.
These trends are reflected in the figure below, which shows retail expenditure over the past 20 years. It demonstrates the dramatic drop in retail expenditure after the GFC, compared to the years immediately prior.
Figure 1. Growth in retail expenditure, Australia, 2000 to 2020
Broken down in subcategories, we see expenditure growth and decline varies within the retail category. For example, the ‘cafes, restaurants and takeaway’ and ‘food’ categories have fared reasonably well over the past decade, while growth in ‘non-food’ retail categories has been much lower.
Figure 2. Average annual growth by retail category, 2010 to 2020.
It is important to remember that ‘non-food’ retailers will be far more vulnerable to the loss of expenditure online, with this fact compounding the challenging retail trade conditions endured by these sectors in the past decade.
The impact of online expenditure on ‘bricks and mortar’ retailers
The charts above provide breakdowns of total retail expenditure; and aggregate of expenditure linked to both online and ‘bricks and mortar’ retailers. While overall retail expenditure has grown at less than 2 per cent per annum for most of the post-2010 period, online expenditure has grown far more rapidly.
Data gathered by the ABS shows that online expenditure is taking an ever-increasing share of the retail pie, with monthly online retail expenditure growing from $9.2 billion in December 2015 to $25.2 billion in June 2020.
Taking into consideration the loss of expenditure online, we see that growth in per capita expenditure in ‘bricks and mortar’ retailers has grown much slower than total retail expenditure, with negative growth recorded in a number of quarters in recent years.
Figure 3. Annualised per capita growth in retail expenditure, total vs ‘bricks and mortar’, 2016 to 2020
It is probable that, in the post-COVID world, with an increasing proportion of retail expenditure shifting online, we have moved to a situation in which per capita expenditure on ‘bricks and mortar’ retailers in Australia has commenced a year-on-year decline. In other words, the continued flight of retail expenditure from our centres probably means that per capita ‘bricks and mortar’ retail expenditure may have peaked.
Indeed, if we extrapolate from recent trends, this would be the case. If we assume that annual growth in online expenditure continues at 15 per annum (it has grown at an average of 27 per cent per annum over the past four years), and that overall retail expenditure continues to grow at 1.9 cent per annum (equivalent to the average over the past ten years), by 2030:
- Total retail expenditure will have grown from $336 billion to $396 billion
- Around 29 per cent of retail expenditure will take place online, up from around 10 per cent in 2020.
- ‘Bricks and mortar’ retail expenditure will have declined from $303 billion to $281 billion, despite the fact that Australia’s population would have grown significantly over the period.
Figure 4. Projection of total retail expenditure, total, online and ‘bricks and mortar’
Of course, these assumptions could be considered conservative. The reality is that online expenditure could grow significantly faster, and that the share of expenditure going to ‘bricks and mortar’ retailers declines even more rapidly.
These possibilities (and their implications) are rarely acknowledged in retail centre planning, though if we are concerned with planning to meet the essential social and economic needs of future generations, they must be.
What does this mean for local government?
Over recent decades, centre planning has been predicated on the idea that a certain quantity of retail floorspace is required for every ‘catchment’ resident. An effective decline in per capita floorspace requirements means that we are quite possibly moving into an era in which there is a structural surplus of retail land in our centres. This has widespread consequences for local governments and planners, including:
- A decline in demand for retail floorspace leading to a potential reduction in commercial land values in many centres. Without clear planning strategies, opportunistic ‘upzonings’ would have the potential to further undermine the role and focus of centres.
- Centres with ‘natural advantages’, such as those with a more affluent resident base or those with good urban design fundamentals, are better placed to outcompete smaller centres for increasingly scarce retail expenditures.
- The flight of expenditure from the least advantaged centres could mean visitation declining below a critical threshold, with centre blight resulting in ‘non-viable’ centres with:
- fewer local jobs and fewer opportunities for local entrepreneurs
- reduced access to high quality, vibrant public spaces, undermining the social role played by public spaces, and reducing the livability of surrounding areas
- social impacts of the loss of these social spaces, such as increased social isolation and reduced mental health.
What can local governments do?
As discussed, past retail planning has been based around a set of assumptions that no longer hold, and most of our local/activity centres are laid out in a way that fails to recognise the emergence of a new retail paradigm.
Ongoing evolution in the retail environment, with these changes exaggerated by the COVID-19 pandemic, means that Australian retail centres, most of which were established to meet the needs of consumers in a pre-internet world, are set up to potentially fail, with surrounding communities likely to bear the economic and social costs.
There is an opportunity for local governments to take a proactive role in preparing their centre networks for these changes. Steps local governments can take now to secure their activity networks in the face of the changes to come include:
- Revisiting activity centre strategies to ensure that levels of floorspace are sustainable in the post-pandemic world. This may mean the adoption of deliberate strategies to manage reduced floorspace quantities in some centres.
- Developing strategies to allow centres and local retailers to better compete with online retailers, for example:
- investing in improving centre ‘experience’
- optimizing convenience, making access by all modes as easy as possible (within constraints)
- setting up programs to help small businesses invest in dual ‘bricks and mortar’ and online sales channels.
- Being bold and innovative with use of strategic and statutory planning tools. An example may be to ‘upzone’ parts of poor performing centres, using medium-density housing to ensure a critical mass of activity within the remaining retail space. Local governments might also consider value capture mechanisms that ‘socialise’ the value generated (as a result of rezonings) to invest in physical and amenity improvements across the remaining centre.
- Utilising the potential role of local government functions in activating centres and co-locating (or relocating) local government services to activity centres and strengthen their role as community hubs, wherever possible.
- Supporting the delivery of innovative housing models adjacent to centres to support expenditure and activation (e.g. ‘ageing in place’ dwellings co-located with health services, affordable housing, medium- or high-density housing where supported by transport infrastructure).
- Explore opportunities for more active public space management, such as events programs, and festivals.
- Encouraging greater flexibility in how spaces are designed to accommodate changing uses from traditional retail to other uses (such as gyms or yoga studios), and office use or co-working space.
- Exploring opportunities to encourage the retrofitting of spaces for alternate uses, and interventions such as the provision of affordable workspaces, or encouraging a local market (as discussed in this LGiU series) and increasingly recognised within the sector as providing an opportunity for a mixed-use, flexible destination spaces that cater for a vast audience.
- Reconsidering what constitutes a sustainable level of floorspace provision in growth areas.
Retail centres in Australian cities serve important social and economic functions. The growth of online retail, however, in conjunction with a number of other trends, means that per capita ‘bricks and mortar’ retail expenditure is likely in a state of decline, and that these declines will accelerate in coming years. With less expenditure finding its way to centres, our metropolitan centre networks will face serious viability challenges. This is particularly the case for lower-amenity centres in some of our more disadvantaged regions.
There is an opportunity for local governments to be proactive in how they respond to these changes. This includes revisiting pre-pandemic assumptions around floor space requirements, to be clear on what realistic targets look like. There are a number of interventions that local governments can explore using this now-vacant space for, such as a markets, co-working spaces, accommodating the shift to health and wellness (as will be discussed in a future briefing), and potentially higher-density living. Ultimately, any response will require a concerted response from across council. This requires strategic plans and land use controls that set clear and realistic expectations, supported by economic development practices around relationship-building and curation of spaces and activities to create lively centres.
By acting now, local governments can ensure that centres are set up to weather as best they can the challenges of the next decade.
Related LGiU Australia briefings include:
- Municipal markets: models for well-functioning urban food infrastructure
- Unlocking the potential of municipal markets in a post-COVID world
- Providing of affordable workspaces: How councils can utilise property assets
- Strategic planning for the changing roles of activity centres post Covid-19
- Post-Covid cities: how might the pandemic change urban areas?
- Using pop up & temporary leases to reactivate local retail centres impacted by Covid-19
For more information on this briefing contact LGiU Australia by emailing email@example.com