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RETAIL property transactions shows so no signs of slowing and will remain elevated at above-trend levels throughout the remainder of 2016, according to the Australian Property Institute JLL 2016 Mid-Year Retail Perspective.
API retail spokesperson and JLL national director of valuations Stephen Andrew said various capital sources looking for acquisitions and a range of existing owners who remain motivated to dispose of assets and refine their portfolios will keep transaction activity elevated.
He added that a number of major global investors will continue to build their property exposure.
“The record level of offshore investment in 2015 is a clear indication that Australian retail property remains attractive in a global context due to the stability of returns, market transparency and transaction scale,” Andrew said.
The 2015 calendar year was a record-breaking year for the retail sector, with transactional volumes over $8 billion for the first time, representing a record high for the fourth consecutive year.
Andrew said buyer and seller trends remained similar to previous years, with 2015 also a record year for acquisitions by offshore investors in value terms.
“Major offshore groups are likely to remain driving acquisitions in 2016 as they continue to target a wide range of individual assets and portfolios,”
Andrew said the drivers of retail turnover suggest growth will remain relatively healthy in the second half of 2016.
“The stable market fundamentals of retail assets in comparison with other property sectors will continue to attract investors. Furthermore, elevated volatility in financial markets and other asset classes will highlight the stability if direct property returns,”
He said retail fundamentals have continued to improve in the first half of 2016, with turnover growth led by 5.1% year-on-year in both Victoria and New South Wales. “Retail spending growth continued to be supported by rising household wealth, residential construction activity and employment growth, despite a slowdown in wages growth,” Andrew said. “Many retailers have been setting new strategies and investing in their business over the past few years,”
Australian REITs were active in disposing of non-core assets and remain focussed on development pipelines and selective acquisitions.
Yields for core assets are expected to reach their low point for the current cycle in 2016.
“At present the yield range between premium and secondary assets in most retail subsectors is approximately in-line with the long-term average suggesting there is not a mispricing of risk as there was in 2007.
“The trend to watch for in 2016 will be whether this range narrows given the strong competition for core assets and as more investors explore higher-yielding opportunities to meet their return hurdles,” Andrew said.
Andrew said that income growth will become the major driver of returns.
“Some investors are likely to target assets with high retail turnover and rental income growth potential and in retail sub-sectors that are defensive to yield decompression as they become available,”
CBD transactional activity remained strong after a solid 2015, with the outlook for CBD retail markets solid due to expanding international retail chains, strong inbound tourism growth, infrastructure upgrades and new developments.
Notable transactions of CBD retail assets in 2016 to date include:
– A 75% interest of the MidCity Centre, Sydney, of circa $310 million at a sub-5% yield
– A partial interest in Myer Centre Brisbane acquired by ISPT with additional 25% interest at circa 6%
– The mixed-use commercial and retail Como Centre in South Yarra, Melbourne, sold for $236.5 million
Current transactions include:
– A one-third interest in Myer Melbourne, circa $450 million at sub-5%
Current offerings on the market include:
– The new St Collins Lane retail development on Collins Street in the Melbourne CBD
Andrew said that within the large format retail submarket, there has been increased investor demand over the past 12 months. A number of transactions have occurred in the first half of 2016, including:
– A portfolio of five centres in New South Wales, Queensland and Victoria purchased by Aventus Property for circa $219 million at around 7.4%, comprising Home Central Bankstown and Home Central McGraths Hill in Sydney; Home Central Shepparton in regional Victoria; and Logan MegaCentre and Macgregor MegaCentre in Brisbane
– Home Quarter Dandenong in Melbourne’s south-east for $29.8 million and Cairns DFO for $39.7 million, both purchased by Sentinel Property Group.
Sub-regional and neighbourhood shopping centre transactions have been driving overall volumes, with the sub-regional sub-sector a clear standout over the last three years; around one in three sub-regional shopping centres have transacted since the beginning of 2013.
Key transactions in 2016 to date include:
– The portfolio of four retail centres in Queensland and Victoria sold by Vicinity Centres, with Blackstone purchasing Clifford Gardens, Forest Hill Chase and Brimbank, and Mirvac buying Toombul.
– A 50% interest in Runaway Bay Shopping Centre, Queensland purchased by Perron Group for circa $320 million at a yield of around 5.75%
– Livingston Marketplace and The Shops in Ellenbrook, Western Australia for yields of 6-6.5% and 5.75-6.25%.
“The wide variations in individual shopping centre performance is likely to motivate a number of owners with large portfolios to reduce their exposure to assets that no longer meet strategic objectives, to use capital more efficiently by redeploying it into other acquisitions or developments of existing assets.”
Rental growth outlook is positive because of stronger sales growth, however the low inflation environment is impacting rental income growth through CPI-linked rental increases.
Growth had been seen in CBD and large-format retail centres, particularly in Sydney in Melbourne although remains muted in other sub-sectors.
“While certain tenant-specific challenges will exist in the leasing market, we expect that overall leasing market conditions will remain generally unchanged from 2015,” Andrew said.
Australian Property Journal
