Shopping centre investment remains strong
Offshore investment in Australian shopping centres accounted for 32 per cent of total acquisitions last year, fuelling another year of high transactions, according to JLL’s latest review.
JLL’s 13th annual Shopping Centre Investment Review and Outlook Report reveals total retail transactions reached $7.3 billion in 2016, down from the record high of $8.9 billion in 2015.
However, 2016 marked the fifth consecutive year that volumes exceeded $5 billion – a level only reached once before in 2003.
Offshore investors purchased $2.3 billion last year, slightly less than the $2.5 billion recorded in 2015. This activity accounted for 32 per cent of total acquisitions, compared with the long-term average of 12 per cent.
Investors from the United States were behind 51 per cent of acquisitions in the five years up to 2016, followed by Asian buyers at 42 per cent. JLL says European investors and pension funds have also renewed their interest in the sector.
“Investor demand remains strong from domestic and offshore capital sources,” says JLL’s head of retail investments, Simon Rooney.
“Demand continues to outweigh supply of investment product, resulting in surplus capital which is yet to be deployed and driving competition-led yield compression.”
Rooney says Australia will 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,” Rooney adds.
Acquisitions by domestic buyers were dominated by private investors, followed by Australian Real Estate Investment Trusts, superannuation funds and unlisted funds. For private investors, acquisitions and disposals were relatively even at approximately $1.5 billion.
Sub-regional shopping centres accounted for the largest share of activity at $2.1 billion (28%), while just one regional shopping centre changed hands last year – the first since 2014. GPT Wholesale Shopping Centre Fund sold its per cent stake in Canberra’s Westfield Woden for $335 million to Perron Group.
New pricing benchmarks encouraged owners to sell major CBD assets, including a 75 per cent share in MidCity Centre Sydney, 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.
Neighbourhood centres also traded well, with total transactions of $1.6 billion representing 41 per cent above the 10-year average. Most retail centres changing hands occurred in Queensland, with 28 transactions totalling $561 million. In comparison, neighbourhood centres remained tightly held in New South Wales and Victoria, with only 10 ($524.7 million) and 12 ($248.4 million) transactions respectively.
According to JLL’s retail research director Andrew Quillfeldt, retail fundamentals remain “resilient”.
“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 focused on upgrading and extending existing shopping centres to attract and retain tenants, and to drive investment returns, Quillfeldt says.