This article is from the Australian Property Journal archive
INSTITUTIONAL investors with large retail portfolios will continue to divest assets in 2020 whilst private investors will remain active purchasers, after becoming net buyers in 2019 for the first time after six consecutive years as net sellers, according to JLL.
According to JLL’s annual Australian Shopping Centre Investment Review and Outlook 2020, it was the slowest first half in 2019 for retail investments since 2009 with transactions in the first half were $1.8 billion, however activity picked up in the second half with $4.5 billion. Despite the rally, transactions finished 2019 at a seven-year low figure of $6.3 billion.
Last year also saw a change in net buyers and sellers as a result of caution in the markets with institutions such as REITs and unlisted funds becoming net sellers whilst private investors became net buyers ($795 million).
Offshore investor acquisitions were stable at approximately $1.4 billion – consistent with the previous two years. As a share of total transactions, offshore investors accounted for 22% in 2019, up from 18% in 2018.
Regional centres accounted for the highest proportion of shopping centres sold over 2019 at 29% or $1.8 billion. Neighbourhood and sub-regional centres accounted for 21% (1.3 billion) and 17% ($1.1 billion) of total transactions respectively. New South Wales accounted for 33% of total sales by value in 2019. Victoria was the most active market by number of transactions in 2019 (39) but transactions by value fell to 19% from 32% in 2018.
JLL’s joint head of retail investments – Australia Jacob Swan said institutional owners with large existing retail portfolios continue to revise their investment strategies and are likely to selectively divest assets in 2020.
This week Lendlease’s APPF Retail put its 50% stake in Westfield Carindale on the market.
“REITs are transitioning from a long term historical strategy of accumulating retail assets to a more selective approach to portfolio construction.
“There is also likely to be a growing shift towards the re-classification of sub-sectors (such as regional and sub-regional) which may have implications for valuations, performance benchmarks and the pricing of risk by investors,” Swan said.
Joint head of retail investments – Australia Sam Hatcher said a range of dynamic new capital sources are emerging to absorb these institutionally owned assets, driven by the opportunistic timing, attractive yields relative to core office/industrial and the longer term potential for re-development and re-positioning.
“A fragmentation of ownership will continue to occur in the retail sector as major owners become more selective towards the assets they retain in their portfolios and as new players build scale in the sector.
“Properties with strong underlying land value and long term future development potential are highly sought by investors. While there has been less liquidity for larger centres, there has been a consistently deep pool of capital for non-discretionary anchored centres and single-tenant retail assets.
“Freestanding supermarkets and Bunnings Warehouses with strong covenants and long leases have continued to attract investor interest. In addition, retail assets in metropolitan areas with development potential remain highly sought after,” he added.
Hatcher expects private players will remain active in 2020.
“Private capital is opportunistic and is acquiring assets to take advantage of the depth of opportunities available. Demand is also strong for core retail assets, particularly for neighbourhood shopping centres in metropolitan locations and for single-tenanted retail assets with long leases,” he said.
Senior director of retail research – Australia Andrew Quillfeldt said although there are limited signs of distress among major shopping centre owners, some groups are motivated to reduce their weighting/exposure to retail which will drive a steady supply of investment product.
“Fundamentals for shopping centres continue to evolve and buyers continue to price-in conservative assumptions. Nevertheless, recent major transactions show there is still capital available for large retail assets.
“The macro-economic drivers of retail spending suggest conditions for shopping centre fundamentals will remain largely unchanged in 2020 given the counterbalancing factors at present.
“Annual retail completions fell by around 27% in 2019 and have been trending lower on a per capita basis for most of the past 25 years, excluding single-tenanted large format retail. The 2020 to 2023 forecasts suggest per capita supply will be around half the historical average,” Quillfeldt said.
