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AUSTRALIA, 24 APRIL 2012 – March quarter figures released by Jones Lang LaSalle show average rents in the retail sector have now broadly stabilised on a national level across the core retail sub-categories. Sub-Regional and Neighbourhood Centre rents have been unchanged over the twelve months to Q1/2012. Average Regional Centre rents have now been stable across the country since September 2011.
Jones Lang LaSalle’s Head of Retail Management Tony Doherty said, “Consumer sentiment and retail turnover growth both remained subdued in the first quarter of 2012 but there is a widening performance gap between prime and secondary centres.
“While retail rental growth has now stabilised on average there is still strong demand from retailers to be located in high quality centres, and these centres are still achieving solid increases in market rents. Conversely, many discretionary retailers are increasingly looking at their store networks and opting to close stores in underperforming centres as leases fall due.
“Tenant demand and retail rents have held up relatively well given the below trend growth in retail spending and the various headwinds weighing on the sector,” said Mr Doherty.
National Retail Analyst Andrew Quillfeldt said, “While the slowing in rental growth has been broad based so far, the timing of the recovery will vary from state to state.
“The outlook for the Queensland and Western Australian retail markets is becoming increasingly positive and we are expecting an improvement in these markets within the next 12 months but the recovery is likely to be more drawn out for the rest of the country.
“Over the last couple of years Western Australia has had strong population growth and economic growth which has resulted in a very impressive turnaround in retail spending, but retailers have been cautious towards expansion and we have yet to see this translate into rental growth.
“Queensland seems to be lagging Western Australia in terms of a bounce back in spending but the demand drivers are positive and suggest an improvement in conditions throughout the year,” said Mr
Construction activity is still largely dominated by Bulky Goods centres due to the rollout of the Masters Home Improvement store network and expansion of competitor Bunnings. However, project commencements in the core retail sub-sectors; Regional, Sub-regional and Neighbourhood, are now also beginning to increase with 150,800 sqm starting in Q1, largely reflecting Lend Lease’s new Craigieburn Central Shopping Centre in Melbourne (55,000 sqm) and Eurkea Funds Management’s Stage 7 extension of Indooroorpilly Shopping Centre in Brisbane (38,000 sqm). This is the largest quarterly project commencements figure since the pre-GFC period (Q4/2007).
Mr Doherty said, “This construction activity is consistent with a number of major retail landlords selling down non-core assets to focus on development and investing in existing assets.”
Project commencements in the core retail sub-sectors; Regional, Sub-regional and Neighbourhood, is now also beginning to increase with 150,800 sqm starting in Q1. This is the largest quarterly figure since the pre-GFC period (Q4/2007).
Retail Sales and Investments:
Australian Head of Retail Investments Simon Rooney said, “We have started 2012 with strong levels of investment activity. There have been 16 retail sales transactions totalling $853.2 million in 2012 to date.
“The largest of these sales was ISPT’s acquisition of a half share in the Myer Centre Brisbane for $366 million from CFS Retail PropertyTrust in March followed by LaSalle Investment Management’s purchase of Home Hub Hills for $178.5 million in January,” said Mr Rooney.
Following their joint venture purchase of a Woolworths portfolio for $266 million in May 2011, Charter Hall Retail REIT and Telstra Super purchased the Wanneroo Central Shopping Centre for $70 million in April, reflecting an initial yield of 8.0%.
“The strong demand for retail assets that has been evident over the last couple of years implies institutional investors are banking on a cyclical recovery in the retail sector,”said Mr Rooney.
Centro has continued its asset sell-down program and was responsible for three sales so far in 2012 totalling AUD 109.0 million. These sales comprised: Centro Townsville in QLD ($36.5 million), 166 City Central in WA ($57.0 million) and Centro Albion Park in NSW ($15.5 million). Centro also placed its 50% interests in three major regional assets on the market in April; Galleria in Perth, The Glen in Melbourne and Colonnades in Adelaide. These three assets represent a total book value of over $1.3 billion.
Mr Rooney said, “Heightened risk aversion among investors and the diverging performance between prime and secondary centres has resulted in greater demand for high quality assets from most buyer types.
“Yields for some secondary grade assets softened marginally at the lowered end of the range in Q1/2012 across the Sub-regional, Neighbourhood and Bulky Goods sub-categories.”
The Q1 figures show the Sydney Sub-regional yield range widened to 6.50% 9.50% in Q1 from 6.50% 9.00% in Q4. The South East Queensland Sub-regional yield range widened to 7.00% 9.00% from 7.00% 8.75%. For Neighbourhood centres, yields in the Sydney market also softened at the lower end of the range to 7.25% 10.00% from 7.25% 9.75%. Similarly, Bulky Goods yields in Sydney softened to 8.75% 11.25% from 8.75% 11.00%. Neighbourhood yields tightened in Melbourne to 7.50% 8.50% from 7.50% 8.75%.
“This tightening reflects a deeper pool of local private investors seeking Neighbourhood assets in the Melbourne market,” said Mr Rooney.
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