Strong sales growth and tenancy uptake is adding fuel to Melbourne’s retail market. According to Jones Lang LaSalle, more than 600,000 sqm is being built or planned in the year ahead.
According to JLL Research, a further 311,000 sqm of supply will enter the market in the next 18 months and there are plans for 291,000 sqm of retail space at ‘plans approved’ or ‘plans submitted’ stage, including 35,700 sqm that could potentially commence in Q3/2006 and the 50,000 sqm retail component of the Convention Centre at Southbank expected to commence in Q2 2007.
JLL said Melbourne’s retail market will eclipse rival cities on the east coast, including South East Queensland which expects 434,000 sqm to come on line in the next two years and 337,000 sqm in Sydney over the next three years.
JLL’s retail director Jeremy Walker said the Victorian market was still doing well 14,000 sqm completed at Karingal Hub Shopping Centre fully leased and a further 52,000 sqm that started construction during Q2 2006.
JLL Research estimates there is now 290,300 sqm of retail space under construction, of which just under 50% has been pre-committed, including University Hill in Bundoora – the largest of the three projects to commence, with 30,000 sqm new retail supply now underway as a part of a significant project which incorporates office, industrial and retail space.
Walker said declines in sales growth, which were predicted as a result of rising petrol prices, did not eventuate.
“Year on year sales in plasma screens were up 100%, potentially due to the World Cup soccer tournament and all retail categories in Melbourne recorded steady rental growth over the first quarter of 2006,” he added.
JLL’s Victorian research manager Darren Krakowiak said rents at regional, sub-regional and neighbourhood centre rents grew by around 1.0% while super regional shopping centres such as Chadstone are experiencing slightly stronger rental growth, which is estimated at 1.25% per quarter.
"Despite some potential storm clouds on the horizon, such as further interest rate increases and petrol prices remaining high for sustained periods, expansion plans by retailers remain conducive to an environment where retail rents within major centres will continue to post solid increases.
"This outlook is consistent with investment demand for retail assets remaining strong, with yields remaining at their current level in the short term, despite retail assets already being close to fully priced,” he added.
JLL’s retail research director David Snoswell said that despite the negative effects of the interest rates rises and rising petrol prices the retail market will be offset to a degree by the income tax cuts and lower unemployment figures.
According to JLL Research, buoyant consumer spending has resulted in positive quarter of retail trade growth in the June quarter.
JLL found that in the June quarter, continued tenant demand provided steady rental growth in all regional, subregional and neighbourhood markets with net rental growth ranging between 0.8% to 1.5%.
By Nelson Yap
