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News release


Retail rents still under pressure but development activity is increasing: Jones Lang LaSalle latest retail market figures for March

AUSTRALIA, 8 MAY 2013 – March quarter figures for the Australian retail market released by Jones Lang LaSalle show market rents remain under pressure, but positive underlying trends in consumer spending are emerging.

Jones Lang LaSalle’s Head of Retail, Property & Asset Management Tony Doherty said, “While there has been a modest recovery in underlying retail spending, and some reasonably positive signs for the short term outlook, market rents continue to remain under downward pressure.
“Landlords and Centre Managers are becoming increasingly realistic with their leasing expectations in shopping centres where they are required to.
“The importance of ensuring we have quality retailers is greater now than ever. Taking a high risk on retailers that are prepared to pay a higher rent is not always the best alternative,” said Mr Doherty.
The Jones Lang LaSalle figures show that retail rents on average across all formats declined by approximately 0.5% in the 12 months to March 2013. The declines have been localised rather than a broad-based effect across all markets and retail formats and performance still varies significantly from centre to centre.
National Retail Analyst Andrew Quillfeldt said, “We see limited scope for specialty store rental growth within the next 12 months because many of the domestic fashion retailers are still cautious about expanding, but landlords are now actively trying to drive income growth in individual centres by commencing refurbishment and expansion programs on their major assets.”
Consumer sentiment has been positive with the Westpac - Melbourne Institute consumer sentiment index above the neutral level of 100 for six consecutive months. Further, the general trend in retail turnover growth over the past 12 months has been upward, despite a small pull back in the month of March 2013. The negative monthly result in the ABS March figures (-0.4%) reflects a slight moderation following two reasonably strong months of +1.3% (MoM) in both January and February.
Development  activity is increasing:
Mr Doherty said, “The increasing number of joint ventures in ownership structures in the Australian retail market will lead to further refurbishment and redevelopment in the sector.
“In the sub-regional and neighbourhood shopping centre categories , both Coles and Woolworths have been active in developing centres to accommodate their stores’ growth plans.
“In the first quarter alone, 11 of the 18 retail projects to commence were anchored by either a Woolworths or Coles supermarket, or a Bunnings or Masters Home Improvement store,” said Mr Doherty.
Last week, Coles and ISPT announced a joint venture transaction, involving the sale of a 75 per cent interest in an initial portfolio of 19 Coles-owned shopping centres across Australia valued at $532 million, delivering proceeds to Wesfarmers of approximately $400 million. The Portfolio included 18 neighbourhood shopping centres and one sub-regional.  This latest joint venture transaction is further evidence of a growing trend of capital partnering to unlock funds for future development.
It follows the $371.4 million sale in February of a 50 per cent share in five retail assets (predominantly sub-regional shopping centres) on behalf of Federation Centres to ISPT. Jones Lang LaSalle negotiated both deals and has a further $1 billion of part shares in due diligence due to exchange in coming weeks.
Redevelopment - Regional centres:
Over the past 12 months, a significant volume of capital has been committed to regional centre redevelopment projects.
• Westfield announced a $400 million redevelopment of Garden City at Mt Gravatt, Brisbane in April, which will result in a 40,000 sqm expansion of the centre;
• Lend Lease (and joint venture partner The Future Fund) also recently commenced a $300 million extension of Lakeside Joondalup in Perth;
• Further, in late 2012, AMP Capital started a $390 million extension of Macquarie Centre in Sydney.
Mr Doherty said, “These new developments suggest owners are more confident about the conditions in the leasing market and reflect their willingness to accommodate new international retailers that are trying to build a presence in the Australian market.”
In terms of redevelopments that commenced during Q1 2013, a total of 195,700 sqm of projects commenced including the extension to the regional centre, Lakeside Joondalup (28,300 sqm) in Perth and Perron Groups extension to the sub-regional Cockburn Gateway (30,000 sqm) also located in Perth.
In terms of redevelopments that completed during Q1 2013, a total of 118,500 sqm of retail stock reached completion including GPT’s 30,000 sqm extension to Highpoint Shopping Centre in Melbourne, Rundle Place in Adelaide (23,200 sqm). Also to complete over the quarter was a minor extension and reconfiguration to QIC’s Canberra Centre to accommodate the new international retailer Zara.

The classifications of shopping centres are below for reference:
CBD: The main commercial centre of a metropolitan area. Retail forms found within
the CBD include strip shops, enclosed arcades and very large shopping complexes.
Regional Centres: Major centres that are department store based (Myer, David Jones). These centres often contain more than 200 specialty shops and several other major tenants.
Sub-regional Centres: Centres that are discount department store based (eg Kmart, Target, Big W and Harris Scarfe), including at least one supermarket and specialty stores.
Neighbourhood Centres: Enclosed centres containing a supermarket and
Bulky Goods: The sale of low cost/high bulk goods, such as furniture, electrical
goods and building products. May be freestanding, in enclosed centres or within retail warehousing parks