Outlook for retail investment – a new high in 2017

JLL’s Australian Shopping Centre Investment Review & Outlook report shows offshore investors are leading the way

March 13, 2017

JLL’s outlook for the Australian retail investment market is for transaction activity to reach a new record in 2017, as the high rate of turnover for retail assets continues – an ongoing trend for the last five years, driven by a number of key strategies employed by owners and investors alike. 

In 2016, transactions to offshore investors reached $2.3 billion, slightly below the $2.5 billion recorded in 2015. Offshore investment activity accounted for a significant 32% of total acquisitions, compared with the long-term average of 12%.

JLL’s annual Shopping Centre Investment Review and Outlook Report reveals total retail transactions reached $7.3 billion in 2016, down approximately 18% from the record high of $8.9 billion in 2015. CBD and sub-regional shopping centres were the standout performers and the major theme in 2016 – with a record set for CBD shopping centre sales at $1.9 billion. The previous record for CBD transactions was $1.2 billion in 2015. Sub-regionals accounted for the largest share of activity in 2016 at $2.1 billion (or 28%) and are expected to be the major focus of attention for domestic and offshore investors alike, given their defensive qualities and attractive growth profile.

New pricing benchmarks encouraged owners to sell major CBD assets in 2016, leading to significant landmark transactions including: MidCity Centre Sydney (75% share), a one-third share in Myer Bourke Street in Melbourne, St. Collins Lane in Melbourne, David Jones Market Street in Sydney and Carillon City in Perth. 

Simon Rooney, JLL’s Head of Retail Investments – Australasia said, “Investor demand remains very strong from domestic and offshore capital sources. Demand continues to outweigh supply of investment product, resulting in surplus capital which is yet to be deployed and driving competition-led yield compression.

“Australia is expected to attract a high proportion of offshore capital again in 2017, given retail yields in Australia remain high in a global context and market fundamentals are relatively stable. Australia’s status as a low-risk investment destination with high levels of market transparency and the opportunity to secure large, institutional grade, core and core-plus assets, continues to drive significant demand from global investors.

“Domestic owners will selectively dispose of or offer passive JV interests in assets to fund developments and bolster portfolios, reduce risk and maintain low gearing,” said Mr Rooney.

There was just one regional shopping centre transaction in 2016 – the first since 2014. GPT Wholesale Shopping Centre Fund (GWSCF) sold its 50% share in Westfield Woden for $335 million to Perron Group.  

In terms of the outlook for 2017, JLL expects a limited number of regional shopping centres could become available for acquisition over the next 12-24 months in some form, as owners seek strategic partners for major redevelopments and capitalise on favourable market conditions.

Mr Rooney said, “Regional shopping centre redevelopments are highly capital intensive. We expect a number of major owners to potentially seek diversification by reducing high exposure to a single asset and trade area and look to unlock capital to fund alternative developments across their portfolio.

“Sub-regional assets have been the most highly traded category for each of the last four years. Investors continue to be attracted to this retail sector given their defensive nature and the relative value proposition that it offers in terms of the attractive yields, inbuilt growth and value-add opportunities, to drive returns through active asset management strategies.”

Total transactions for neighbourhood centres totalled $1.6 billion in 2016, 41% above the 10-year average. The large majority of transactions occurred in QLD, with 28 transactions totalling $561 million, while neighbourhood centres remained tightly held in NSW and VIC, with only 10 ($524.7 million) and 12 ($248.4 million) transactions.

Key highlights - Shopping Centre Investment Review and Outlook Report:

  • Transaction volumes:  2016 was another highly active year for the Australian retail investment market. 2016 marked the 5th consecutive year that volumes exceeded $5 billion – a level only reached once before in 2003.  2016 transactions reached $7.3 billion, approximately 18% below the record of $8.9 billion reached in 2015.
  • Australia continues to attract offshore capital:  In the last five years, investors from the USA accounted for the greatest share (51% of acquisitions by offshore buyers).  Investors from Asia were also a major contributor (42%). There is renewed interest in the Australian retail sector from European investors and pension funds, as well as ongoing demand from North America and Asian investors.
  • Domestic players remain active on the buy and sell side:  Acquisitions by domestic buyers in 2016 were led by private investors, followed by A-REITs and to a lesser extent, superannuation funds and unlisted funds. For private investors, acquisitions and disposals were relatively even in 2016 at approximately $1.5 billion - $1.6 billion, after being net sellers from 2013 to 2015.
  • A-REITs:  A-REITs were more active in the market (on both the buy and sell side) than they have been over the past 10 years, reflecting the view that owners continue to rebalance portfolios. 
  • Product: CBD and sub-regional shopping centre transactions continued to be the main theme in the retail market. Only one regional centre transacted in 2016 – the first since 2014. Neighbourhood remains an active part of the market and heightened competition for assets has driven further compression of yields. 
  • Yields:  CBD, regional and neighbourhood yields are now all sitting at record low levels (on average), on a national basis, and sub-regional and large-format retail yields are within 10 basis points of their historical low.

JLL’s Retail Research Director, Andrew Quillfeldt said, “Retail fundamentals remain resilient at the headline level. Vacancy rates decreased on average in the second half of 2016, occupancy cost ratios in the regional and neighbourhood sub-sectors have decreased over the last few years and the overall supply pipeline is relatively modest at a national level.

“Owners are deploying capital into their extensive development pipelines and are focused on primarily upgrading and extending existing shopping centres in order to attract and retain tenants, and drive investment returns. 

“Although the leasing market has been supported by the entrance of new international brands in certain segments, competition remains high in the retail sector and there is a divergence occurring between the performance of individual retailers. Online retailers continue to create further competition for traditional retailers – especially for those that rely on price as a key differentiator.  

“Retail turnover growth will be supported over the medium term by a recovery in wages growth and inflation. We expect rents to grow at around the rate of inflation through 2017, but are expecting there to be more scope for rents to recover from 2018 given the reset in occupancy cost ratios that has already occurred and the alignment between retail sales growth and fixed rental increases,” said Mr Quillfeldt. 

Table 2 Retail transactions by sub-sector

Sub-sector 2016 
(AUD million)
10-Year Average
(AUD million)
CBD $1,899 $621 206%
Regional $335 $1,054 -68%
Sub-regional $2,051 $1,329 54%
Neighbourhood $1,552 $1,100 41%
Large-Format Retail $716 $716 0%
Other $762 $655 16%


About the publication

The Australian Shopping Centre Investment Review & Outlook is JLL’s flagship annual retail publication. The 2017 edition marks the 13th year of the series. The report aims to provide an overview of the key issues and themes impacting retail investment decisions, as well as providing investors with a comprehensive analysis of the outlook. 

Classifications for shopping centre sub-sectors:  CBD: The main commercial centre of a metropolitan area. Retail forms found within the CBD include strip shops, enclosed arcades and very large shopping complexes. Regional Centres: Major centres that are department store based (e.g. Myer and David Jones). These centres often contain more than 200 specialty shops and several other major tenants. Sub-regional Centres: Centres that are discount department store based (e.g. Kmart, Target and Big W). 

Neighbourhood Centres: Enclosed centres containing at least one supermarket and specialties.