This article is from the Australian Property Journal archive
THE versatility of large format centres and recovery in consumer spending will bring greater returns for landlords compared to traditional shopping centres over the next decade, according to BIS Oxford Economics.
According to the research firm’s latest Large Format Retail Property report, the sector will first need to move past a period of weak consumer demand and growing supply driven by converted former Masters stores, where some centres will be particularly vulnerable.
The study’s author, BIS Oxford Economics senior project manager Maria Lee, said the silver lining the sector is the increasing ability for centres to incorporate non-traditional tenants, while planning policy and rulings across the country move towards greater flexibility.
“We’re seeing more gyms, play centres, medical centres, chemists, baby goods shops, pet supplies outlets and other uses,” Lee said. “This broadening of tenant mix not only improves visitation across the week but also helps keep a lid on vacancies. Importantly, these tenants often pay a higher rent than the traditional large format tenants.”
Aventus Property Group, which landed the sector’s largest-ever transaction deal last year with the $436 million acquisition of Home Hub centres at Castle Hill and Marsden Park, yesterday revealed in its interim result that its portfolio had diversified to include around 37% non-household good tenants by income, including “food, health and wellbeing, services and childcare which contribute to weekday traffic and improve customer linger time”.
It said that figure is 34% by gross lettable area, compared to the broader sector average 27%. Occupancy was up slightly to 98.6%, and it secured 46 leasing deals across 38,000 sqm.
BIS Oxford’s head of property, Dr Frank Gelber, last week forecast large format retail property to outperform traditional retail centres over the next five years, with projected returns of around 8.5%.
He said sentiment turned against the retail sector, which is experiencing tough trading conditions and looks unlikely to see any near-term improvement.
The new report looks to 2027 and said the large format sector should reap the benefits of appreciably stronger consumer spending beyond the next few years.
“This factor, together with the tenancy mix changes under way, should generate stronger returns to large format retail property than to other classes of shopping centre,” Lee said.
However, the speed and scale of the impending supply surge is likely to cause some short-term pain for some.
“Locational imbalances of supply and demand could see some centres suffer. And smaller centres, in particular, are at risk of falling income if one or two tenants fall over in the continuing challenging retailing conditions,” Lee said.
She added that while the trend of broadening tenancy mix benefits large format retail centres and their investors, there are implications for other types of retail.
“Comparatively cheap rents and easy customer access make large format centres attractive to retailers. As centres increasingly morph into hybrid lifestyle, leisure, entertainment or convenience centres, they will challenge other forms of retail floorspace.”
The Australian Market Expectations Survey by Urban Property Australia and Situs RERC showed businesses including large-format centre staples Harvey Norman, The Good Guys and JB Hi-Fi, were considered among those at the great risk of Amazon’s official Australian debut. It also indicated that Amazon is likely to have the biggest impact on the bulky goods, high street retail and outlet centre sectors, while CBD retail and shopping centres are considered best-placed to handle its presence.
JB Hi-Fi yesterday revealed a 21% increase in its half-year net profit after tax to $151.7 million, but its share price took a hit as the market took a dim view of its full-year NPAT guidance of $235 million to $249 million – an increase of between 13.1% to 15.5%, but short of expectations. It opened seven stores in Australia over the half, but closed one in its softer-performing New Zealand market. Rounding out 12 months of ownership of The Good Guys, two stores were opened in the half.
Consumer spending growth had slumped from 9% in moving annual terms to just 2% over the last few years, and that tempered growth is tipped to remain throughout the coming decade, alongside muted economic and household income growth.
At the same time, supply levels are increasing as Masters stores are converted into large format retail centres and other projects secure pre-commitment after extended marketing periods.
The report comes one week after Wesfarmers announced a $1.3 billion write-down of its Bunnings operations in the UK and Ireland. At the end of last year, MAB Corporation secured Bunnings as the anchor for its $150 million, 38-hectare Element Park commercial estate in Melbourne’s south-eastern suburb of Clyde, selling a 37,760 sqm site with a permit for a new 16,600 sqm Bunnings Warehouse.
Recent Cushman & Wakefield research showed Australia’s large format centre saw $1.4 billion of sales throughout 2017, underpinned by the Aventus Home Hub centres deal. The steady line of deals has continued into 2018, with Sentinel Property Group completing a trio of sales of fully leased centres along the eastern seaboard for a combined $89.05 million.
The purchaser in two of those deals, Primewest, quickly followed up with the $45 million acquisition of the single-level, 15,886 sqm West Gosford Hometown large format retail centre at 356 Manns Road.
In recent weeks, Perth-based syndicate Properties & Pathways made a quick profit on the Tuggerah Central shopping central, selling the 4,118 sqm complex at a record yield for the state of 6.5%, for $10.8 million.
Australian Property Journal
