Australian retail a star performer
The Australian commercial property investment market remains “red hot” and retail property continues to shine on the global real estate investment stage, says St.George Bank chief economist Besa Deda.
“The 2015/16 year witnessed a record level of capital invested in Australian retail property assets,” says Deda (pictured), who will be speaking at Property Congress next month.
She says both off and onshore buyers have driven the flow of funds to retail. International investors accounted for 31 per cent of overall sales volumes in retail over the year – up from 18 per cent in the previous year, according to Colliers data.
“Global geopolitical uncertainty, volatility in financial markets and very low inflation in many major economies has spurred foreign interest in Australian retail property assets,” Deda explains.
“Australia’s economy is transitioning, as the mining investment boom unwinds; but economic growth is still reasonable, particularly when compared with some other economies offshore.”
The low Australian dollar is also providing a catalyst for foreign purchaser activity.
“We expect the Australian dollar to trade close to the low-to-mid 70 US cent range for the remainder of this year and into next year.”
Super funds and real estate investment trusts remained the largest buyers of retail property assets over the last financial year.
“Yields on commercial properties, including retail properties, have fallen quite strongly. The sheer weight of money looking to invest in property amid a lack of attractive alternative investments has contributed to the fall in yields on retail assets.”
CBD and regional assets are highly sought after but so little traded, leading investors to explore alternative retail assets.
“Portfolios of sub-regional and neighbourhood assets could become more enticing to investors, particularly those with the potential for either gross leasable area growth or airspace development,” Deda explains.
Capital partnering – whereby shopping centre owners sell a chunk of their asset offshore – is another growing trend.
“Shopping centre owners are raising capital in this way and investing it back into their assets via expansion. Capital partnering can also help with repositioning,” Deda says.
“There are a growing number of examples in the retail property market where owners are investing heavily – not just to preserve their relevance to tenants and the surrounding catchment, but also to grow total returns.
“Some foreign investors can be reluctant to invest directly in Australian retail assets because of the high level of management and expertise required to operate retail assets well. This is why foreign investors may choose to pursue alternative methods of entry into Australian retail property, such as capital partnering and indirect investment through wholesale funds.”
Meanwhile, the latest data from the Australian Bureau of Statistics reveals that retail sales growth in the year to July is on the sluggish side of the ledger; the pace of growth was 2.7 per cent – well below the long-run average of 4.4 per cent.
“Retail competition is strong, margins are being squeezed and wage growth is weak,” Deda says.
However, consumer confidence has been “pretty stable” for the last six months.
“Retail sales growth is generally stronger in NSW and Victoria, reflecting firmer rates of economic activity and jobs growth in these states,” Deda says, adding that the transition from resources to services is also having an impact.
“The strength of the residential housing boom is a source of growth in retail spending, as new home owners or investors fit out or renovate the new property purchases.
“And the fundamental factors such as population growth, reasonable jobs growth and low mortgage rates are all support retailing growth.”
Besa Deda will be sharing further insights during the Retail Revelation session at The Property Congress from 20-22 October 2016. More than 690 delegates will attend this year’s SOLD OUT event. www.thepropertycongress.com.au