This article is from the Australian Property Journal archive
Latest research by Jones Lang LaSalle has revealed Melbournians’ love affair for the good life is the driving force behind the continued strong growth in the retailing food and lifestyle sector.
Selecting the right location for food and lifestyle shops is behind the persistent tenant demand for more and more retail premises, says JLL’s Victorian head of research, Darren Krakowiak.
“Although we do need to sound a note of caution for future prospects in this sector as the full extent of sustained higher petrol prices on household spending is not yet apparent and it could stymie sustained growth and expansion by retailers,” Krakowiak said.
In fourth quarter of 2005, seven shopping centre projects added just over 60,000 sqm to the market with an extension of 15,000 sqm at Highpoint Shopping Centre in Maribyrnong and the completion of the 13,500 sqm Chirnside Homemaker Centre in Mooroolbark being the highlights for growth.
“Construction has also commenced on a further 129,600 sqm of retail space during fourth quarter of 2005 taking the total under construction to 220,800 sqm,” Krakowiak said.
“Of this total, an impressive 66 percent is already pre-committed.”
Major retail construction projects include the retail component of Southern Cross Station (43,000 sqm, of which around two-0thirds will be DFO space), Stage 2 of the Freeway Central site in Essendon (35,000 sqm of bulky goods retailing), a 22,000 sqm bulky goods centre at Home HQ in Nunawading as well as the 26,800 sqm extension to Epping Plaza.
A further 295,000 sqm of retail space is also in the development pipeline at the “plans approved” or “plans submitted” stages including the 40,500 sqm extension to Chadstone Shopping Centre which gained Victorian Government approval in December 2005.
“Despite all this new space coming available tenancy demand has coped well with vacancy rates within regional centres at an negligible 0.1% and vacancy levels in sub-regional centres up by 0.3% to 2.1% in the final quarter of 2005,” Krakowiak said.
“It was particularly pleasing to note that the prime retail vacancy rate in the CBD improved, down 0.3% since June 2005 to 3.4% in December 2005.
“Rents in neighbourhood centres grew by 1.1% over fourth quarter of 2005, regional centres 0.9 percent, sub-regional centres one percent and bulky goods rental growth was just half a percent for the quarter,” he said.
The final quarter of 2005 was a slow period for investment sales in the retail sector with only two major sales recorded above the $5 million threshold. The sale of Stages 1 and 2 of the Warrnambool Homemaker centre for $42.5 million was the largest recorded transaction, whilst the Dan Murphy liquor store sale at 470 Nepean Highway, Brighton sold for $9.3 million on a firm yield of 6.4%.
Investment yields remained stable over the final quarter of 2005.
Regional median yields have remained unchanged over the last 12 months at 6.50% while sub-regional yields have also been steady, at an indicative level of 7.25% since December 2004.
“It appears that investor interest in the retail sector has peaked in the current cycle, however yields remain firm due to the strong weight of funds chasing limited assets and because retail sales have remained relatively resilient,” Krakowiak concluded.
By Kathryn O’Meara
