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News release

SYDNEY

Retail Outlook Clears

Tenants and investors buoyed by continued strong consumer confidence


SYDNEY, 4 NOVEMBER 2009 – Retailers and investors continue to grow increasingly confident about the outlook for the retail property sector, as evidence builds that the Australian economic downturn is turning out to be much milder than expected, according to Jones Lang LaSalle’s Q309 statistics.
 
“The quarter has been marked by signs of recovery in the level of retailer demand for space, a stabilisation in both vacancy and rents in most monitored markets, a stabilisation of yields for prime assets, and growing investor confidence”, said National Retail Analyst, Leigh Warner.
 
“However, the big change has been a strengthening in retailers’ views on the outlook for the sector over the next six to 12 months.
 
“There had been considerable caution amongst retailers earlier in the year that retail trade and consumer confidence would rapidly deteriorate as the fiscal and monetary policy support  for spending faded, but this simply has not been the case and both have remained very strong.”
 
“The Westpac-Melbourne Institute consumer sentiment index reached an incredibly strong 121.4 points in October, which is its highest level since June 2007.
 
“This, together with the realisation that unemployment is not going to reach the levels previously forecast and that the future supply pipeline is thinning out rapidly, means that retailers are now a lot more comfortable with where things are heading,” Mr Warner said.
 
The Q3 statistics showed that the total amount of retail space under construction across Australia has fallen to 762,600 sqm across all sub-markets, which compares to a peak of 1.4 million sqm in mid-2008. In the third quarter, just 22,100 sqm of new projects commenced nationally, which compares to the completion of 82,300 sqm of projects (see Chart below).
 
The stabilisation in the market is well illustrated in Jones Lang LaSalle’s Q3 retail rental data.
 
After falling for the past two and four quarters respectively, average rents (across all capital city markets) in the neighbourhood and bulky goods sub-sectors were stable in Q3/2009. Rents were also stable in the CBD sub-market, while they continued to grow, albeit modestly, in the regional (0.3%) and sub-regional (0.2%) sub-sectors.
 
Jones Lang LaSalle’s National Head of Retail Management and Leasing, Tony Doherty said, “While rental growth on average has been flat or minimal, there has been considerable variation within sub-sectors.
 
“For example, some quality regional and sub-regional centres have experienced no significant decline in occupancy at all and have moved through this downturn without rental growth falling much at all.
 
“In contrast, some centres in secondary locations have experienced much more significant declines in occupancy and as a consequence have been forced drop their rents. This highlights the fact that it is individual asset characteristics that matter in the current environment and the strength of property management is an important aspect of protecting asset values at present,” Mr Doherty said.
 
Jones Lang LaSalle’s National Head of Retail Investments, Simon Rooney said, “The steady recovery in investment activity within the retail property sector continued during Q3-09, with 15 sales being recorded totalling AUD 541.4 million.
 
“The quarter witnessed a material shift in the size of transactions occurring within the market, a trend which has been gaining momentum over the past 12 months. This was evidenced by the average value of transactions in Q3-09 being recorded at AUD 36.1 million, significantly larger than AUD 22.5 million last quarter,” said Mr Rooney.
 
“This can be largely attributed to the controlled re-entry of the institutional investor back into the Australian retail property market, for attractive, high quality, counter cyclical opportunities such as Highpoint Shopping Centre and the adjoining Maribyrnong Homemaker City Centre, Victoria, where The GPT Group acquired a 16.67% interest for AUD 206.3 million and Northgate Shopping Centre, Tasmania, where the CFS Retail Property Trust acquired a 100% interest for AUD 70.1 million. Both of these transactions occurred throughout Q3-09.
 
“This would seem to signal an increasing confidence and depth in the investment market, now that many of the major REITs have undertaken significant capital raisings and that sentiment more generally is recovering.
 
“Further evidence of this improving confidence has been the number of larger opportunities which have been  recently  put to the market, including  the direct 100% interest in ING's Lakeside Joondalup Shopping Centre in Perth, the ensuing off-market sale process for the ING Australian Retail Property Fund and the DEXUS owned 50% interest in Westfield Whitford City, also in Perth,” said Mr Rooney.
 
Major retail transactions for Q3 comprised:
 
• The GPT Group acquired one third of the Besen family’s 50% share (i.e. 16.67%) of the Highpoint Shopping Centre (a regional centre) and the adjoining Maribyrnong Homemaker City Centre (a bulky goods centre) in Victoria for AUD 206.3 million;
• Endeavour Hills Shopping Centre (a sub-regional centre) in Victoria sold for AUD 80 million;
• Northgate Shopping Centre (a sub-regional centre) in Tasmania sold for AUD 70.1 million
• Underwood Marketplace (a sub-regional centre) in Queensland sold for AUD 50.9 million; and
• Firle Plaza (a sub-regional centre) in South Australia sold for AUD 37.8 million.