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News release

Retail supply pipeline builds

Sydney, 27 April 2011 – The retail property construction pipeline has picked up considerably over the past few quarters and Q1/2010 saw 20 projects start nationally totalling over 243,400 sqm, the highest level of quarterly commencements in over three years according to Jones Lang LaSalle’s latest market statistics.


Jones Lang LaSalle’s Q1 2011 data release shows that total retail space under construction nationally has grown to 676,170 sqm. This compares to a trough of below 470,000 sqm in late-2009, but is still well below the peak reached in mid-2008 when more than 1.4 million sqm was under construction across the country.


Jones Lang LaSalle Director of Retail Research, Leigh Warner said that a lot of the increase in the supply pipeline has been in the bulky goods sector and in the regional shopping centre sub-market.


“In the bulky goods sector, Bunnings have substantially increased their expansion in response to the roll out of Woolworths’ new hardware brand Oxygen, which already has a number of stores under construction and is aiming to open 150 stores nationally over the next four years,” said Mr Warner.


“For regional centres, Westfield started a 35,000 sqm extension of their Fountain Gate Shopping Centre in Melbourne, while GPT commenced a 30,000 sqm extension of their Highpoint Shopping Centre, also in Victoria.


“While the current retail environment is still one characterised by caution and uncertainty, the commencement of these major projects that will complete in early 2013 is an endorsement of the outlook for retail turnover over the next few years,” said Mr Warner.


While construction activity is picking up, Jones Lang LaSalle’s data showed that rental growth slowed slightly in Q1/2011 in most sub-markets, although generally remained positive.


“Landlords took the opportunity to raise rents in 2010 after they stalled in 2009, but ongoing subdued conditions in some key retail categories, particularly fashion and book retailing, has dampened scope for rental growth in 2011,”said Jones Lang LaSalle’s Head of Retail Management, Tony Doherty.


“However, while demand in parts of the sector is weak, it should also be recognised that there are a number of areas of extreme strength in tenant demand. In particular, the supermarket chains continue to follow very strong expansion plans, there are areas of strength among retail service providers, while particular retailers such as JB Hi Fi and Bunnings continue to follow rapid expansion paths,” said Mr Doherty.


“There also remains a number of international retailers that have been scoping the market for some time, that appear to be waiting to assess how international retailers already committed to the market, such as Zara, fare on the Australia scene,” Mr Doherty said.


From an investment market perspective, there were 26 major (over AUD 5 million) transactions recorded in Q1/2011 totalling AUD 427.5 million. However, 13 of these were part of portfolio transaction finalised in the quarter that saw 10 existing Bunnings stores and three sites sold by Bunnings Group Ltd to BWP Trust for AUD 241.7 million.


Jones Lang LaSalle’s Head of Retail Investments Simon Rooney said, “Q1 is generally a slower quarter for transactions, but there has been an encouraging level of activity on a number of major transactions that will be finalised over the next few months.”


“The recent major campaigns have shown competitive bidding from a range of investor types, including the major local institutional investors, offshore investors and high net worth private investors,” said Mr Rooney.


Jones Lang LaSalle’s data shows that retail yields have generally been very stable over the best part of 2010, but there was moderate tightening of yields recorded in some markets in late-2010 and early 2011.


“There is a growing confidence among investors that the downturn has past and that adverse leasing risk is receding. This is causing many investors to review the risk premiums that have been applied to assets, particularly those secondary assets that were harshly treated during the downturn.


“Increased competition amongst investors is having a bearing on yields at the top end of the market,” Mr Rooney concluded.