Retail property to remain flavour of the month

Yields for Australian retail assets will bottom out during 2016 as their popularity among investors continues to surge, research suggests.

After a record year in which retail transaction volumes topped $8 billion for the first time, JLL’s Australian Shopping Centre Investment Review and Outlook predicts another bumper 12 months for the local market.

The unprecedented $8.4 billion of investment activity last year – up 12.6% on the $7.5 billion in 2014 – was powered by a record $2.4 billion from offshore investors, led by American investor group Blackstone’s $655.5 million purchase of the Scentre portfolio, comprising three Westfield shopping centres in regional Queensland and New South Wales.

Blackstone also swooped on Adelaide’s Rundle Place and 80 Grenfell St in a $400 million sale that was the largest in South Australian history.

JLL expects the money to continue flowing throughout 2016, with more offshore investors and wholesale funds seeking to gain a foothold in Australia.

JLL head of retail investments, Australasia, Simon Rooney says the increasing interest will push yields to the bottom of their cycle.

The Spotlight Centre in Gladstone is one of a pair of retail centres to be sold by Goldman Sachs.

“As we move into the next phase of the investment cycle, yield compression will no longer be the major driver of returns in 2016 and investors are likely to focus on assets that can deliver the highest potential for income growth in order to drive capital values and returns,” Rooney says.

“Investors continue to exhibit a high capacity and willingness to engage in major retail acquisitions, while at the same time re-engineering their portfolios with tactical asset disposals.”

The retail market is unlikely to be oversupplied over the 2016-2018 period on a national basis, partly because there is a high level of refurbishment of existing space occurring

Already this year Perth billionaire Stan Perron has fielded interest in the Campbelltown Mall in Sydney’s outer south-west, with suggestions it could fetch up to $200 million.

And global investment banker Goldman Sachs recently put two shopping centres in Gladstone on the market as it bids to become the latest group to take advantage of a national stampede for regional and sub-regional retail assets.

JLL retail research director Andrew Quillfeldt says the increasing value and returns from individual shopping centres will continue to underscore their popularity among investors this year.

The Capalaba Square Shopping Centre sold during 2015 for $148.5 million.

“We continue to see a wide divergence in the underlying performance of individual shopping centres, and that is one of the key factors driving the elevated level of asset trading,” Quillfeldt says.

“For the overall retail sector, the fundamental drivers of retail spending imply positive market conditions in 2016. Retail spending continues to be stimulated by low interest rates. Strong growth in house prices in Sydney and Melbourne has boosted household wealth and confidence, and solid residential construction activity has also been driving strong growth in household goods spending.”

Quillfeldt says that despite a high level of shopping centre development activity forecast between now and 2018, supply will remain stable.

“The retail market is unlikely to be oversupplied over the 2016-2018 period on a national basis, partly because there is a high level of refurbishment of existing space occurring,” he says.