VIC emerges as country’s retail investment hotspot
VIC emerges as country’s retail investment hotspot
10 September 2013
Melbourne, September 10, 2013-Despite soft conditions in Australia’s retail sector, Victoria remains a hub of investment activity, with international and institutional groups continuing to show confidence in the state’s retail market.
According to CBRE’s Australia MarketView Q2, 2013 report, Victoria has emerged as the epicentre of investment, accounting for 46% of all national activity over the second quarter of 2013.
A shift in consumer spending towards food retailing has underpinned higher investment levels in neighbourhood shopping centres. Prime core regional assets continue to attract both domestic and foreign institutions, accessed through capital partnerships and joint venture acquisitions.
CBRE Senior Retail Research Manager Tammy Smith said the change in investor sentiment was the result of an economic shift and the move towards non-discretionary spending.
“Households have recalibrated after sustained periods indebtedness. During 2007, household gearing ratios reached almost 155% of the annual household income, and we have only since made a small dent in the Australian leverage profile,” Ms Smith said.
“The accumulation of debt, which allowed consumer spending growth to exceed income growth for a decade and a half, has come to an end. The market has adjusted to a more sustainable rate of growth and retail spend, with a notable shift away from discretionary spending to non-discretionary.”
The report shows that while Victoria’s retail turnover figures in the 12 months to June 2013 were below the national average – recording no growth over the period – supply levels and rents have continued to trend upwards.
Construction activity over 2013 has been dominated by neighbourhood centre developments, with an anticipated 84,000sqm of additional space due to be added to the supply pipeline by the end of 2013.
Over the 12 months to June, metropolitan regional rents have lifted to sit between $1,385 per square metre and $2,615 per square metre. Following a similar trend, neighbourhood centres have benefited from the large food based tenant mix to record a 3.1% increase in rents annually.
Due to the large discretionary spend exposure of sub-regional centres, rents fell 4.1% to sit between $598 per square metre and $1,317 per square metre during the same period.
CBRE Director of Victorian Retail Investments Mark Wizel said investment activity in Victoria’s retail market was currently at its highest since the global financial crisis.
“Over the first half of 2013, retail investment levels were at a five-year high, with the low interest rate environment and strong performance of retail assets – particular non-discretionary - seeing investors show renewed levels of confidence in both regional and CBD markets,” Mr Wizel said.
Victoria’s neighbourhood shopping centre market has been a standout performer on a national level in 2013, Mr Wizel explained, with a wide range of private and corporate acquisitions such as ISPT’s purchase of 75% interests in over 20 Coles developed properties and SCA Property Group’s acquisition of the Lascorp portfolio, as well as several standalone centres purchased by private, Victorian-based investors.
During Q2, Melbourne CBD vacancy rates remained stable at 1.9%, with retail stores situated in prime locations experiencing record letting periods and consistently achieving high rents.
Vacancy pressure is expected to ease in the Melbourne CBD market however, with retail construction forecast to increase over the next 18 months. The strong growth in development is driven by the completion of several apartment buildings with a large proportion of ground floor retail space.
Mr Wizel said the strength of the CBD retail market was highlighted earlier this month, with the $105 million sale of 206 Bourke Street to Singaporean listed company, HIAP HOE – a deal which represented a passing yield in excess of 7% for an asset that has been offered to the market several times over the past two years.
“There is no doubt we are seeing a structural return of confidence from investors wanting to acquire well leased and well located retail properties in the Melbourne CBD,” Mr Wizel said.
Despite a downturn in clothing, footwear and personal accessories turnover in the year to June, Melbourne CBD rents remain stable, with prime and secondary locations commanding $3,150 per square metre and $1,765 per square metre respectively.
“We believe that for the first time in four years, confidence within the Melbourne CBD tenancy market has exceeded that of the investment market – ultimately this means that over the coming months the investment market will respond in a positive manner,” Mr Wizel said.
“Asian investment within the Melbourne CBD, and specifically for retail properties, is currently at unprecedented levels, with properties ranging in value from $2 million to $100 million attracting interest from both Asian investors living locally, as well as offshore-based investors looking to deploy funds to the state’s capital city.”
The report shows that despite a weakened environment for Victoria’s bulky goods sector, the supply pipeline continues to grow significantly, with approximately 89,600sqm of space currently under construction and due for completion by the end of the year. This is in addition to 54,500sqm of space already completed during the past six months.
Masters and Bunnings continue to account for much of the supply pipeline in 2013, while traditional multi-tenanted bulky goods construction has fallen significantly.
“Under the new planning reforms introduced in July, it may be that we see Victoria’s underperforming bulky goods retail centres look to integrate smaller format supermarkets to stimulate new business activity and increase foot traffic,” Ms Smith said.
Net face rents for Melbourne’s metropolitan bulky good centres rose 8% in the year to June at the upper end, sitting at $170 per square metre and $400 per square metre.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website atwww.cbre.com.au.