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JLL’s annual Shopping Centre Investment Review and Outlook 2018 states investors will strategically position themselves in 2018 to gain market share in a changing and competitive environment, which drove transactions in 2017 to the second highest level on
AUSTRALIA, 11 April 2018 – The changing and competitive retail environment is driving transaction activity for shopping centres, as owners refine their portfolios, adjust their exposure to different states and asset types and seek greater diversification to improve their long-term risk-return profile.
Australian Shopping Centre Investment Review and Outlook 2018 states that a widening variance between individual retailers and between the performance of prime and secondary grade retail assets has resulted in investors becoming increasingly selective and cautious in terms of shopping centre performance.
This will drive investor decisions in 2018.
JLL's Head of Retail Investments – Australasia, Simon Rooney said, "Investors clearly have a diversity of views on the outlook for the Australian retail sector, which stimulated near-record levels of asset trading for shopping centres in 2017.
"Given the compression in yields over the last few years and the increasing reliance on income growth as a driver of returns, asset selection will be key in 2018.
"Opportunities for high-yield investors are emerging in 2018 given the increasingly diverse underlying performance of centres, particularly in the sub-regional shopping centre sector.
"We expect high quality retail assets to remain resilient, delivering attractive returns and therefore are continuing to be highly sought after by investors.
"Experienced and active asset management will be key to extracting value and delivering outperformance in this competitive retail environment, which is supportive of the ongoing trend towards joint ventures.
"Owners have been undertaking strategic portfolio restructuring in the last few years to re-position their businesses for growth. While a lot of these strategic manoeuvres are now largely in place, for most groups, we still see the need for ongoing tactical adjustments to retail portfolios (sales and acquisitions) to maximize portfolio returns," said Mr Rooney.
JLL's Director of Retail Research, Andrew Quillfeldt said, "Increasing divergence in the sector is creating risks and opportunities for owners. While e-commerce is weighing on shopping centre sales growth, some of the cyclical drivers of retail spending are showing more positive signs of a recovery in the short-term. Lower quality retail assets have been most affected by changes in the retail industry, but quality retail assets are continuing to perform well.
"The retail sector is going through a period of adjustment as retailers continue to revise their business models to reflect the globalisation of retail, changes in technology, changing consumer preferences and trends between generations.
"Retailers are rationalizing their store networks and/or relocating to better performing centres with a stronger trading profile or more dominant position within their catchment.
"Shopping centre owners will continue to leverage technology as an opportunity, find new ways to adapt the physical retail environment to the latest consumer trends and engage with new and innovative retailers," said Mr Quillfeldt.
Offshore investment down by 46% in 2017, but indirect investment into domestic funds:
Offshore investors were a much smaller proportion of transaction activity in 2017 than the previous year. Acquisitions by offshore investors declined to $1.4 billion in 2017, from $2.5 billion in 2016. Despite this 46% decrease in offshore investment in 2017, volumes were in line with the 10-year average in percentage terms, with offshore investors accounting for 16% of total sales in 2017.
Mr Rooney said, "While there continues to be significant demand from overseas institutional investors for Australian retail assets, the focus is on prime quality, core and core-plus opportunities.
"Although direct acquisitions by offshore investors declined in 2017, offshore investors contributed strongly to activity by investing indirectly into domestically-managed wholesale funds."
Key highlights – JLL Shopping Centre Investment Review & Outlook 2018:
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2017, JLL had revenue of $7.9 billion and fee revenue of $6.7 billion; managed 4.6 billion square feet, or 423 million square meters; and completed investment sales, acquisitions and finance transactions of approximately $170 billion. At the end of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of 82,000. JLL has over 50 years of experience in Asia Pacific, with over 37,000 employees operating in 96 offices in 16 countries across the region. We were the first global commercial property firm to establish an Australian presence in 1958 and currently employ over 3000 employees throughout our 18 offices across the country.
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