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News release


Retail vacancy rates rise moderately in 1H 2012, yet investment demand remains strong

AUSTRALIA, 18 JULY 2012 – June quarter figures released by Jones Lang LaSalle show retail vacancy rates rose moderately in the first half of 2012.
National Retail Analyst Andrew Quillfeldt said, “The average retail vacancy rate across all markets and retail formats rose from 3.2% in December 2011 to 3.5% in June 2012.
“The moderate increase in the retail vacancy rate was broadly in line with our expectations. Conditions remain very challenging for many discretionary retailers, particularly those in the apparel industry.
“We expect vacancy rates will remain stable through the second half of the year before declining in 2013 as the effect of lower interest rates begins to flow through to retail spending and tenant demand,” said Mr Quillfeldt.
Jones Lang LaSalle’s Head of Retail Management Tony Doherty said, “The difference in performance between dominant centres within their trade area and the second tier centres has become even more significant this year.
“While the Q2 research shows rental growth has now stalled, on average across the country, shopping centres that are well managed and are actively adapting to changing consumer behaviour with innovative and creative solutions continued to record strong positive rental growth.
“However, we have seen the majority of the recent increase in vacancy concentrated in secondary centres, and this has resulted in some downward pressure on rents. Tenants continue to scrutinise their store networks carefully and in some cases are closing stores in underperforming centres.
“The retail sector is becoming even more competitive, not only for retailers, but landlords as well. This has led to an increase in refurbishment and extensions in order to enhance the retail offering each centre can provide,” said Mr Doherty.
Jones Lang LaSalle’s Q2 research shows the average CBD and Neighbourhood vacancy rate rose in the first half of 2012, yet declined in regional centres and was unchanged in the sub-regional sub-sector.
Vacancy rates in Sydney and Melbourne remain low and below the national average across all the retail formats.
CBD retail vacancy rates rose in all markets except Brisbane which remained stable. The most significant increases were in Perth (10.8%, up from 9.6%) and Adelaide (4.9%, up from 3.3%). The high vacancy rate in the Perth CBD is the result of new supply in recent years which resulted in an increase in backfill vacancy, particularly on the CBD periphery. The national CBD retail vacancy rate rose to 5.0% in June from 3.9% in December 2011.
The average sub-regional vacancy rate was stable at 2.8% reflecting slight increases in Sydney, Melbourne and Perth, and moderate declines in South East Queensland and Adelaide.
The average neighbourhood vacancy rate increased to 5.0% in June, from 4.7% in December 2011. Again, the results were mixed among the states with South East Queensland (7.5%, down from 10.4%) and Melbourne (3.8%, down from 4.9%) the most significant movers.


Retail Investment Market Conditions and Transaction Activity
Australian Head of Retail Investments Simon Rooney said, “Despite the persistent challenging retail turnover environment, the first half of the year has seen an exceptionally high level of investment activity with AUD 2.6 billion of retail transactions recorded. This represents a 41% increase over the same period in 2011 and is a strong endorsement by the investment community in the sector.
“The strength in retail investment activity reflects two key trends.
“Firstly, it represents investors’ exercising counter cyclical investment strategies to enter the historically stable retail sector at a time where yields remain attractive and values remain close to their trough for the current cycle.”
“Many buyers are selectively targeting shopping centres with either growth opportunities, through either expansion or repositioning, or dominant centres which have held up well and outperformed through the slowdown in retail spending in recent years.”
“Secondly, risk aversion in global capital markets has led to a strong premium quality focus by investors and this has been consistent with a lot of the recent transactional evidence, whereby the majority of sales have been quality assets with strong retail fundamentals and future growth profiles,” said Mr Rooney.
Jones Lang LaSalle’s Q2 research shows yield ranges widened across some markets and retail formats reflecting the discrepancy between demand for prime and secondary assets.
The Q2 figures show retail yields softened at the lower end of the range for Regional centres in Adelaide from 6.00% - 7.00% to 6.00%   7.25%, while regional centre yields in Perth tightened by 25 basis points (bps) at both the upper and lower end of the range to 6.00% - 6.25%.
In the sub-regional sub-sector, yields in Adelaide softened 50 bps at the lower end of the range from 7.50% - 9.00% to 7.50% - 9.50%. Similar to trends in the regional sub-sector Perth sub-regional yields tightened from 7.00% - 8.75% to 6.75% - 8.75%.
In the neighbourhood sub-sector, Sydney was the only market to show any change. Yields softened 25 bps at the lower end of the range from 7.25%   10.00% to 7.25% - 10.25%.