The Perth retail market is set to change dramatically over the next five years, as most of the largest regional shopping centres in the state are upgraded and expanded. Over 385,000 sqm of new retail space is planned or already under construction, or 77,000 sqm per annum, equal to 40% above the long-term average. Over the last 20 years, the Perth market has seen an average of around 55,000 sqm of new retail space enter the market each year. Given Perth’s mining-boom fuelled population growth in the last 10 years, it is possible that the additional retail supply over the next five years is to cater for the significant population growth over the last decade, as well as to meet the demand from future population growth, albeit a more subdued rate of growth.

Looking forward, if projects and developments go ahead as planned, it does suggest some potential growing pains for the Perth market as completions peak in 2018 and 2019. With this in mind, we explored some of the possible implications for the Perth retail market by looking at population forecasts to estimate underlying demand and the potential for oversupply.

The analysis showed that over the last 20 years, for every additional person added to Western Australia’s population, 1.4 sqm of new retail space has been built. Using this ratio and current population forecasts (from Deloitte Access Economics) which have been consistently scaled back, underlying demand suggests an additional 268,000 sqm of retail floor space will be needed in the next five years. When compared to the 385,000 sqm in the supply pipeline for the same period, at first glance this would suggest the Perth retail market may be oversupplied by approximately 117,000 sqm.

However, looking back at the last decade, it was noticed that for the five years between 2008 and 2012, the peak years for population growth in Perth, the retail market was under-supplied by approximately 150,000 sqm based on the historical ratio.

This suggests that rather than being oversupplied in the long-run, the supply that could be delivered partly reflects a catch-up from the 2008-2012 period as well as meeting the underlying demand from the forecast population growth over the medium-term. The large supply additions forecast for 2018 and 2019 will create a short-term surplus but the Perth market looks reasonably balanced in the longer run.

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