Investment strong in Australia retail market despite soft conditions
Investment strong in Australia retail market despite soft conditions
18 September 2013
Sydney, September 18 2013-Retail investment activity in Australia remains strong, despite soft economic conditions.
According to CBRE’s Australia Retail Marketview Q2, 2013 report, over the second quarter of the year, retail investment reached $1.5 billion, bringing total investment for the first half of the year to just under $3 billion.
In particular, high transaction volumes and strong investor purchaser demand during the first half of 2013 pushed retail investment activity to its highest level over a six month period since 2007. This has occurred at a time when general trading conditions remain relatively subdued, particularly amongst the discretionary retail categories.
CBRE Regional Director of Retail Investments Neil Proudlove said investor appetite for Australian retail property remained strong.
“Institutional investors – both foreign and domestic – continue to pursue retail assets, particularly regional centres or property portfolio opportunities which offer purchaser investment ‘scale’, with purchases often being accessed through capital partnerships or joint venture acquisitions,” Mr Proudlove said.
“Overall, Victoria remains the hub of retail investment activity, accounting for 46% of all transactions over the second quarter, while A-REITs have emerged as the most active seller.”
CBRE Senior Retail Research Manager Tammy Smith said despite heightened levels of investment in the retail market, any significant capital growth has yet to materialise, probably due to the generally subdued retail spending environment.
Retail turnover growth remained soft over the 12 months to June, rising 1.1%, with food retailing out-pacing non-food retailing. Non-discretionary and food based spending now accounts for 55% of sales in the retail sector, up from 51% five years ago. Conditions for household goods and department stores remained weak, with both the bulky goods sector and CBD retailing impacted.
“The market is recalibrating after a sustained period of high consumer spending, where, since 2007, household gearing ratios reached almost 155% of the annual household income,” 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. As the market adjusts to a more sustainable rate of growth and retail spend, there has been a notable shift away from discretionary spending to non-discretionary.”
The report shows food spend, which comprises restaurant, café and takeaway retail, increased 3.0% in the year to June, while during the same period non-food retailing slumped 1.2%.
As a result of the shift towards higher levels of discretionary spending, neighbourhood and major regional ‘destination’ centres with a strong proportion of food retailing tenants are seeing the strongest rental growth.
CBRE National Director of Retail Services Alistair Palmer said fiscal pressures and competition from new market entrants was impacting on local retailers.
“In order to preserve margins, our local retailers have implemented a number of cost containment strategies including reduced wage costs and better inventory management, as well as direct sourcing of products,” Mr Palmer said.
“This is a positive trend, with many of our home grown Australian retailers now becoming more productive.”
With food spend growth nearing 3% year-on-year, Mr Palmer said there was an influx of new quick service restaurants such as Mejico – a Mexican concept restaurant – being rolled out across the country.
“Institutional investors are also increasingly looking towards repositioning regional assets as ‘destination’ centres to take advantage of the upswing currently being experienced in this category of the market, with Federation Shopping Centres being one of the most active in this space and will include the likes of Roselands,” Mr Palmer explained.
A total 197,000sqm of additional regional space is anticipated to reach completion during 2013, with a further 458,500sqm currently in the pipeline with an anticipated 2014 completion date.
Despite fashion retailing and department stores being the hardest hit by the downturn in consumer confidence, Australia’s CBD retail markets are set to receive a boost over the next 18 months, with 88,000sqm of space to be completed by the end of 2014.
The report also shows that despite conditions remaining challenging for bulky good centres, this sector of the market is dominating the retail supply pipeline.
The roll out of new Bunnings’ and Masters’ stores continues, with the pair adding a further 106,800sqm to supply in the six months to June 2013, with an additional 385,500sqm expected by the two developers over 2014.
By comparison, 179,000sqm of traditional bulky, stand-alone retail and retail superstore supply has been added to the market during the first six months of 2013, with an additional 415,600sqm expected to reach completion by the end of the year.
Strong levels of supply activity in this sector of the retail market are expected to continue, with the supply pipeline for 2014 forecasting 785,000sqm.
CBRE Head of Retail Bulky Goods Australia Chris Parry said bulky good centres, while not completely unaffected by the retail downturn and rise of online retailing, was less impacted than other sectors.
“Whilst not invulnerable, the need for consumers to still touch and feel a sofa, mattress or new fridge is protecting the bulky goods market to some degree from online retailing,” Mr Parry said.
“Anecdotally, feedback from bulky goods retailers is that NSW and WA seem to be the top performing states for this sector of the market.”
Construction over the past 24 months has been dominated by the expansion of the hardware giants, Bunnings and Masters, however, construction activity for traditional, multi-tenanted centres is on the rise.
"Projects such as Joondalup Square in WA and the Caroline Bulky Goods and Lifestyle Centre in Victoria are evidence of improving levels of confidence freeing up demand and boosting leasing activity across the country,” Mr Parry said.
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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.