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News release

Retail vacancy rises, but remains low

However, supply builds as retailers look to recovery

SYDNEY, 20 JULY 2011 – Average specialty store vacancy rates rose across all retail sub-categories over the first half of 2011 in line with the generally soft retail environment, but remain low according to Jones Lang LaSalle’s latest market statistics.
The largest jump in vacancy was for regional shopping centres, where average vacancy rose from 0.6% at the end of 2010 to be 1.4% at the end of Q2/2011. However, this is slightly misleading according to Jones Lang LaSalle’s Director of National Retail Research, Leigh Warner because this un-weighted average was heavily influenced by the smaller markets of Canberra and Adelaide.
“Regional shopping centre vacancy remains below 1% in Sydney, Melbourne, South East Queensland and Perth, which is still low any way you look at it,” said Mr Warner.
“Many of the vacancies that have emerged more recently have been the result of the much publicised failure of several book retailers and the Colorado Group earlier in the year.”
“What this may do now is open up the door slightly for a number of international retailers that have been scoping the Australian market for some time, but have been somewhat constrained by a lack of quality space options in CBD and regional centre locations. Many of these retailers will have been buoyed by Zara’s successful launches in Sydney and Melbourne and this demand may help soak up some of the vacancy that has recently emerged,” said Mr Warner.
Despite a generally soft retail environment, Jones Lang LaSalle’s Q2 2011 data release shows that the retail supply pipeline continues to growth. At the end of the quarter, there was 762,700 sqm of retail space was under construction nationally, which compares to 466,000 sqm at the end of 2009 when the impact of the GFC was at its greatest.
Jones Lang LaSalle’s Australian Head of Retail Management, Tony Doherty suggests that conditions still remain very challenging for developers and it is largely specific retailers driving the pick-up in construction activity.
“In the bulky goods sector, Bunnings have substantially increased their expansion in response to the roll out of Woolworths’ new hardware brand Masters, while store growth ambitions within the supermarket sector is still driving activity in the sub-regional and neighbourhood centre market,” said Mr Doherty.
“Nevertheless, activity also continues to pick up on core regional and CBD centre assets” said Doherty, “which is a good endorsement that major centre owners are looking to capitalise on an inevitable recovery in retail turnover over the next few years.”
“For example, Westfield reported in May that they are undertaking pre-development activity on eight of their centres across Australia beyond their current three projects,” said Mr Doherty.
Jones Lang LaSalle’s Australian Head of Retail Investments, Simon Rooney believes that major investors too are looking beyond the current weakness in the retail environment and looking to position themselves for the next cycle.
‘Investment activity has remained strong in 2011 and over AUD 1.7 billion of retail property has already changed hands this year to date,” said Mr Rooney.
“Offshore investors remain very active, but are now getting much more competition from local institutional investors that are well and truly back in the market en masse.”
The four largest transactions this year to 30 June have been:
  • The AUD 455 million sale of a 50% interest in Northland Shopping Centre, a 92,380 sqm super regional centre 11 km north of the Melbourne CBD. The asset was purchased by CPPIB from the Gandel Group, reflecting an initial yield of 6.25%;
  • Charter Hall Retail REIT and Telstra Super acquired six neighbourhood and two sub-regional New South Wales and Victorian based shopping centres in a one-line transaction from Woolworths Limited for $266 million, reflecting an initial yield of 7.94%;
  • Bunnings Group Limited (BGL) transferred to Bunnings Warehouse Property Trust (BWP) 10 operational Bunnings Warehouses and three properties on which BGL will develop Bunnings Warehouses on, for a total price of $241.71 million on an initial yield of 7.71%; and
  • LaSalle Investment Management acquired the Novotel on Collins hotel and Australia on Collins shopping centre for a total of AUD 204 million from Thakral Holdings on a yield of 8.20%
According to Mr Warner, while the retail property market still remains in solid shape, a fast rebound in the market should not be expected.
“Consumers still do not feel confident in the outlook for their own personal finances and continue to be very conservative and pay down debt rather than spend on consumer goods. The high Australian dollar is also having a big impact on retail turnover by boosting offshore internet retailing, dampening inbound international tourism and boosting outbound international tourism.”
“These factors will slowly fade and retail turnover will again slowly start to reflect the low unemployment, solid wages growth and robust population growth that Australia currently has.
“However, this is not likely to happen overnight and it will take some time before retailers regain the confidence to expand and/or upgrade their current premises,” said Mr Warner.