This article is from the Australian Property Journal archive
THE year ahead will present investors with opportunities to acquire retail assets at attractive pricing whilst owners continue to rejig their portfolios. However, development activity is predicted to slow as investors defer projects to reassess their viability.
Simon Rooney, JLL head of retail investments, Australasia
“We expect retail investment activity in 2019 to be at a similar level to this year, even though such a high volume of stock has traded in the last few years. In terms of the pipeline of activity for 2019, there are a number of major assets being offered for sale at present, formally and informally, which will drive activity next year.
“There is still strong motivation among many existing owners to continue to refine their portfolios to focus their attention, capital and resources into a smaller number of assets to extract higher returns. REITs are likely to be the main driver of this trend, but we’re likely to see a diversified set of vendors through 2019.”
“Vendor expectations have eased for non-core assets. Buyers have become more cautious and are factoring in more conservative assumptions. Owners are likely to meet the market in order to execute on their strategic investment decisions and extract value from other assets in their portfolio.
“The outlook for retail fundamentals is improving. The labour market remains strong and the prospect of a wage growth rebound is strengthening, which will be the catalyst for a rebound in discretionary retail spending categories.
“Finally, retail offers relative value given the attractive yields compared with other asset classes, which have continued to shift lower.
“The opportunity for investors in 2019 will be to acquire retail assets at attractive pricing, extract value through change-of-use opportunities and deploy capital and intensive asset management to drive leasing outcomes and reduce risk.”
Mark Wizel, CBRE national director
“It was only 10 months ago that some were forecasting the demise of traditional shopping centres on the back of the arrival of some significant e-commerce players into the Australian market. That has not occurred. Indeed, it might be argued that the e-commerce threat has been a blessing in disguise in forcing an overdue revitalisation of the shopping centre offering – taking shape in the form of a successful tenancy remix strategy. Retail has shown a pleasing resilience and an ability to adapt to a changing environment that has at least partially underpinned a very good year for retail investments.
“In 2019, we are going to see a firming of those emerging trends that we witnessed over 2017/ 2018. Those trends have included a broadening of investors’ thinking on shopping centre investments. Where traditionally income related factors, and particularly a weighting towards non-discretionary spend tenancies, have been the key to investment in the sector, we have seen a shift of focus towards longer term aspects of investment.”
“Future development upside has become an increasingly important investment factor – particularly with sub-regional and neighbourhood centres on sites and in locations with potential for significant mixed-use development. The key driver here has been population/catchment growth and an assumption that local governments will welcome development proposals designed to maximise site usage within core municipal zones.
“We have also seen landlords respond to the e-commerce challenge and its impact on consumer spending within shopping centres – particularly across the fashion industry. Remixed tenancies have supported growth in food and beverage as well as service based retailing, while efforts to keep customers in centres longer have also included more family friendly facilities such as safe/supervised children’s play areas. All indications are that these strategies have been successful.
“We expect to see increasing interest from Chinese buyers, and Asian buyers in general. This will be driven by wider recognition of the long term underlying land value that many retail shopping centre assets offer on top of the very secure, Woolworths/Coles et al based, income streams.”
Michael Bate, Colliers International head of retail
“2019 will see a slowing of all pipeline development activity across the Australian retail sector, including large format retail (LFR). Institutional owners are increasingly deferring their regional projects to reassess their viability.
“There will be renewed interest in LFR as a standalone asset class, to ensure growth via LFR retailers and sustainability of the category.
“The year ahead will also bring further consolidation of discretionary specialty retail brands throughout Australia, along with more retailer mergers & acquisition activity as the retail market becomes tighter”
Frank Gelber, BIS Oxford Economics, head of property
“While expected total returns to retail operations that successfully navigate the impending structural changes remain solid despite softening yields, some retail centres will struggle. The risk plays out as a property risk rather than a market risk.”
Sam Tamblyn, Urban Property Australia managing director
“The Australian retail property sector has continued to perform well over 2018, despite challenging retail trade conditions with the retail market supported by a growing population and strong employment conditions.”
“The entrance of Amazon into Australia has highlighted the rise of e-commerce however in a global context, online retail trade penetration in Australia remains immature with online sales accounting for only 6% of all retail sales in comparison to China at 28% and the UK (18%).
“Looking ahead, with e-commerce expected to continue to increase, UPA expects rental growth will remain subdued for retail assets while yields for retail property will rise as investor demand eases for the asset class.”
Shaun O’Sullivan, m3property director
“There is currently increased focus on major tenant leasing risk given the under performance of department stores and discount department stores, and with many major tenants seeking shorter initial terms of say 10 or 15 years. The concern is that this may have increased the risk profile of retail property,”
“Shorter lease terms will provide landlords with the flexibility to reconfigure major’s tenancies and potentially lease to new and more appealing retailers that provide the best experience for shoppers.
“Should major tenants vacate or downsize, stronger, dominant centres will be better placed to backfill with alternative uses which increase dwell time of patrons, such as leisure operators.”
Australian Property Journal
