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News release

Australia

JLL Q1/2014 Research: Retail rents stabilise and outlook for fundamentals strengthens

Retail development activity continues to grow


​AUSTRALIA, 30 APRIL 2014 – March quarter figures released by JLL show retail rents have stabilised for the second quarter in a row, setting the groundwork for a recovery in retail market conditions in the latter half of 2014.

According to JLL’s Head of Retail, Property & Asset Management, Tony Doherty, “JLL Research figures for March show market rents were stable across the main shopping centre categories for the second consecutive quarter despite the recent acceleration in retail turnover growth.

“The latest ABS data indicates retail turnover growth has increased since September last year, from 3.0% p.a. to 4.9% p.a. in February 2014 and that uplift in spending is consistent with what we are seeing across the JLL-managed shopping centre portfolio. 

“We have worked closely with all of our clients to ensure their shopping centres are well placed to capture spending growth as retail activity gathers pace,” said Mr Doherty.

Figure 1 below shows average retail rents have now been unchanged for two consecutive quarters, having declined by 0.4% over the 12 months prior. 

Figure 1 Retail Annual Rental Growth.jpg
JLL’s National Retail Analyst, Andrew Quillfeldt said, “Retail market conditions are slowly improving. The acceleration in retail sales growth has now been underway for the past six months and this will flow through to leasing demand after the usual time lag.

“Containing costs and managing the effects of discounting remain key challenges for many retailers, so we expect there to be limited rental growth in 2014, but the outlook beyond 2014 is becoming increasingly positive for the retail sector. A range of drivers such as retail turnover growth, household wealth and employment conditions suggest leasing demand for retail space will gradually improve this year and we are positive about the outlook for market conditions,” said Mr Quillfeldt.

Landlords and retailers are building for a recovery
The total volume of projects under construction has been gradually increasing since 2009 as landlords progress with new developments. There were 881,000 sqm of retail floor space under construction as at Q1/2014.

Mr Doherty said, “In terms of the composition of the development pipeline of projects currently under construction, the expansion of regional centres remains the largest share (32%). Neighbourhood centres (19%) and bulky goods category killer centres (25%) are also major contributors as Woolworths and Wesfarmers continue to expand their supermarket and home hardware store networks.

“Retail project starts grew 43% year on year in 2013, or 20%, excluding bulky goods category killers. A further 175,000 sqm began construction in Q1/2014.” 

Figure 2 Retail Projects Under Construction.jpg
REITs were the major driver of redevelopments in the March quarter as they forge ahead with their development pipelines.

Some of the project commencements that REITs were responsible for in Q1/2014 include:

Westfield on behalf of AMP Capital - Pacific Fair (46,500 sqm)
Mirvac - Orion Springfield Stage 2 (31,500 sqm)
Stockland - Baldivis (22,500 sqm)
Federation Centres (joint venture with ISPT) - Cranbourne Park (12,500 sqm)
Stockland - Wetherill Park (15,000 sqm)