Retail property investors are staying on high alert as slower consumer spending and increased pressure on traditional anchor department stores could result in a wave of shopping centres being put up for sale.
With interests piqued, eyes are being set upon top-tier (or close to) centres that have potential to for rejuvenation; particularly by adding leisure or residential components on unused land.
Retail transaction activity for 2018 reached the third highest level on record at $8.1 billion. Historically, total transactions broadly ranged between $2.0 billion and $4.0 billion (1990 to 2011) per annum but has been above $6.0 billion per annum for seven years, demonstrating the increased liquidity and demand for assets within the sector.
JLL’s Australian Shopping Centre Investment Review and Outlook 2019 has revealed that while activity was high in value terms, the number of transactions fell notably reflecting the skew towards larger transactions. There were 123 transactions in 2018, down from the peak of 242 in 2015 and 190 in 2017.
Availability of investment product was higher in 2018 than in previous years, with a number of assets continuing to be offered as ‘off-market’ opportunities.
Sub-regional shopping centres contributed to this increased activity with $2.0 billion of sales in 2018, while achieving $1.1 billion in 2017. Investors continue to seek value in the retail sector and remain attracted to the high sub-regional yields relative to other retail formats.
Looking at 2019, JLL’s head of retail investments Australasia, Simon Rooney, has said that investors will be focused on retail values, which had held up well through 2018 relative to retail spending fundamentals.
“Buyers in 2019 will have more selective criteria which will be reflected in pricing,” Mr Rooney said.
“Interest continues to remain strong for Australia’s retail assets because investors can see the value that currently exists.”
Mr Rooney also said that mall owners, particularly Australian Real Estate Investment Trusts (AREITs), were narrowing their strategies and would seek to focus on smaller, more refined portfolios. Major unlisted funds are also expected to continue acquisitions in 2019, but at a slower and more selective pace.
The report also proposes that offshore investors are likely to remain attracted to Australian retail through 2019, given a range of factors that support underlying fundamentals of retail relative to other mature economies. The depreciation in the Australian Dollar also presents an opportunity for global capital sources.
With 2019 tipped to be a “transitional year” for the retail asset sector, there is expected to a wide-spread transferral of assets as owners look to enhance the make-up of their portfolios.
Mr Rooney notes that, “opportunities will emerge for investors to acquire major retail assets, which historically have not been accessible.”