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News release

Retail vacancy shrugs off the slow retail environment

However, rental growth remains under increasing pressure

AUSTRALIA, 7 FEBRUARY 2012 – Average specialty store retail vacancy rates were resilient to the slow retail environment and were largely unchanged in the second half of 2011, according to Jones Lang LaSalle’s latest market statistics.
Jones Lang LaSalle’s Head of Retail Management Tony Doherty said, “Despite the harsher retail spending environment which was the focus of public attention in 2011, shopping centre landlords have done well to mitigate the effects by offering more favourable terms to attract and retain tenants.
“This was evident in the decline in the Sub-regional and Neighbourhood centre vacancy rates and just a moderate rise in the Regional centres and CBD markets in the second half of 2011,” said Mr Doherty.
Sub-regional centre vacancy rates fell in all markets except South East Queensland and the national average declined to 2.8% from 3.3%. CBD and Regional centre vacancy rates increased marginally but both remained below their 15-year average levels. The increase in the Regional centre vacancy rate was attributable to rises in Canberra and South East Queensland, while all other markets remain low, at or below 1%.
Senior Research Analyst at Jones Lang LaSalle, Andrew Quillfeldt said, “While retail vacancy rates broadly stabilised in the second half of 2011, weakness in retail spending is now manifesting itself in different ways.”

“Tenant demand certainly weakened over 2011 as a result of slow retail turnover growth, particularly in the discretionary spending categories. This has put increased pressure on landlords to maintain occupancy levels and rental growth has slowed significantly across all the retail formats as a result,” he said.
According to Mr Quillfeldt, slower employment growth has contributed to lower tenant demand in CBD retail markets, where the average vacancy rate increased to 3.9% in Q4/2011 from 3.3% in Q2/2011. The performance of the different states varies significantly, with vacancy rates ranging from 0.7% in Melbourne to 9.6% in Perth. Tenant demand has remained subdued in Western Australia, despite a sharp rebound in retail turnover, and combined with new supply additions in the Perth CBD, has caused a further rise in the vacancy rate.
Construction activity is slowly picking up across the country, but the rise is largely attributable to Woolworths and Coles developing Masters Home Improvement and Bunnings bulky goods centres.
“We are currently monitoring the construction of 24 Bunnings and Masters Home Improvement projects with another 23 in various pre-construction phases,” said Mr Quillfeldt.
“The number of Regional, Sub-regional and Neighbourhood projects under construction has been relatively low and stable since 2009. However, we’ve seen a rise in the number of projects progressing through the pre-construction phases of development and expect this to translate into new supply over the next few years,” he said.
Major supermarket chains have driven the commencement of a number of neighbourhood shopping centres, which has led to a slight increase in activity in this sub-sector.
“The outlook for tenant demand is now very much hinged on a recovery in retail turnover and we’re expecting rental growth to remain subdued throughout 2012,” said Mr Quillfeldt.
Regional and Sub-regional centres are best placed to benefit from a recovery in retail turnover because vacancy rates and new supply remain low. Jones Lang LaSalle is forecasting a mild recovery in rental growth for both sub-sectors in 2013 in line with an improvement in the overall economy.