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News release

Sydney

Retail supply starting to pick up

Jones Lang LaSalle research for the March quarter shows new retail commencements across Australia the strongest they have been for two years


SYDNEY, 21 APRIL 2010– Construction activity in the Australian retail sector is at its strongest level in two years, according to Jones Lang LaSalle’s March quarter statistics for retail.
 
The Q1 statistics showed that construction activity picked up significantly over the first quarter, with 157,500 sqm of projects commencing construction. 
 
Director, Research and Consulting, David Snoswell said, “This is the highest level of new construction starts since Q4 / 2007 and is a significant turn around from the last two quarter of 2009, which combined totalled only 49,000 sqm.
 
“New commencements this quarter were boosted by the commencement of the Harvey Norman and Ikea Centre at Springvale in Melbourne, which at 72,000 sqm is set to be the largest bulky goods project in Australia.  Total space under construction was 545,900 sqm, with Sydney accounting for 223,000 sqm (41%) of the total,” said Mr Snoswell.
 
Though activity is increasing, only six projects reached completion in the first quarter of 2010, totalling just 47,300 sqm.  The largest project to complete was Home HQ North Shore at Artarmon in Sydney, a bulky goods centre of 22,400 sqm. 
 
Jones Lang LaSalle’s retail leasing team have reported improvement in tenant demand in recent quarters and that improvement has continued in Q1/2010.
 
Jones Lang LaSalle’s National Head of Retail Management and Leasing, Tony Doherty said, “All supermarket operators remain aggressive in their expansion plans in most markets.
 
“Many speciality retailers are also poised to become part of new greenfield developments and the extension of existing centres,” said Mr Doherty.
 
The improvement in the market is well illustrated in Jones Lang LaSalle’s Q1 retail rental data.
 
The turnaround in rental growth observed in Q4/2009 has continued into the first quarter of 2010.
 
“This was evident across all sectors and is consistent with the recent improvements in vacancy rates, retailer demand and economic conditions,” said Mr Doherty.
 
Average regional centre rents across monitored markets grew by 0.6% in Q1/2010, which was in line with reported growth in Q4/2009. Perth reported the strongest quarterly growth (3.0%) with this sector outperforming other sectors in the Perth market.
 
Sub-regional rents grew at their fastest pace since late 2008, with average rents increasing 0.9% in Q1/2010.
 
“The past six months has seen a solid turnaround in rental growth, with average rents growing by 1.3% compared with just 0.2% in the previous six months,” said Mr Doherty.
 
After falling in the first half of 2009 and stabilising in Q3, the average specialty rent in neighbourhood centres have returned to growth in the past two quarters.  Market performance, however, has been mixed, with the Sydney and Melbourne markets outperforming the other markets.
Bulky goods markets have lagged other sectors in returning to positive rental growth.  Rents were generally stable across all markets in Q1/2010.  For the first quarter in seven, however, average rents did not fall. 
 
Jones Lang LaSalle’s National Head of Retail Investments, Simon Rooney said, "Major retail transactions in Q1/2010 totalled AUD 1.756 billion, highlighted by the ING Retail Property Fund Portfolio Australia sale, reportedly sold for AUD 1.4 billion.
 
"This comparative increase in transaction volume, as compared to the corresponding period in 2009, is material and reflective of a general stabilisation of core retail asset values and a growing confidence and demand in the various investor markets, particularly for larger institutional high end deals.
 
"This renewed interest is also reflective of the ongoing strength of the Australian economy, robust consumer spending and low income volatility for core and dominant, quality retail assets.
 
"The outlook is positive, with a significant pipeline of investment activity expected for the balance of 2010, as investors do not want to miss out on opportunistic buying opportunities and owners looking to sell are encouraged by the increasing investor depth in the market," Mr Rooney said.