2016 saw a record $1.8 billion in CBD retail transactions as foreign investors continue their assault on the Australian retail investment market.
CBRE’s Q4 2016 Retail Marketview reveals that nationally, retail yields compressed on average 50bps in 2016, with the largest compressions experienced by neighbourhood shopping centres (60bps) and large format retail (60bps).
CBRE Senior Research Manager, Australia, Danny Lee, said the contribution from foreign investors increased in 2016 to account for 30% of total investments, an increase over the 25% experienced in 2015 and well above the long term trend of 10%.
“Foreign investors have a lower required return expectation than domestic investors and have purchased some of the largest retail assets in 2016, particularly in Melbourne and Sydney,” Mr Lee said.
This includes Charter Hall’s Pakington Strand Shopping Centre in Geelong West which sold in September for $31,800,000 on an initial yield of 4.92% to a Chinese investor. Another Chinese investor picked up Woolworths anchored Pimpama Junction in Queensland for $38,650,000 in April.
Mark Wizel, National Director, Australian Retail Investment Properties said investors are viewing retail as the most attractive asset class due to it having the best risk adjusted return.
“The retail sector is now contributing 31% to total commercial property transactions, compared with 25% two years ago,” Mr Wizel said.
Rent growth coupled with yield compression saw strong growth in capital values, particularly in Sydney CBD, which has encouraged some owners to take advantage of conditions and dispose of assets. Foreign buyers have been actively seeking CBD assets and are willing to pay a higher price to acquire them.
Shopping centre yields continued to firm over the year, with regional, sub regional and neighbourhood yields compressing by 20bps, 40bps and 60bps respectively.
“Neighbourhood shopping centres in all states including Tasmania continue to remain high on the shopping list of a range of private, corporate and institutional investors. However, it has been the emergence of the Chinese buyer for such assets that is starting to add significant pricing competition into the sector with yields continually achieved around the country at less than 5.25%,” Mr Wizel said.
“Large format retail is also attracting foreign investors, particularly Chinese buyers who are seeking exposure to retail and with the lack of Shopping Centres being made available to the market are aggressively chasing large format retail assets.”
“For the first time since 2007, the average yield for large format retail centres compressed well into the 6% range,” Mr Wizel said.
High house prices and the low interest rate environment are increasing renovations and driving household goods expenditure in Large Format Retail Centres. Nationally in 2016, Victoria saw the fastest growing LFR rents, increasing 6.2% y-o-y.
“The sale of Sunbury Showrooms represented the first instance of a what will be a large wave of Asian capital moving into the Victorian large format retail centre market.”
For Australian/international news or global stories, follow us on Twitter: @cbreaustralia
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 (based on 2015 revenue). The company has more than 70,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.