Foreign investors continued their assault on the Australian retail investment market in 2016, with a record $1.8 billion in CBD retail transactions conducted last year, according to property firm CBRE.
The contribution from foreign investors increased in 2016 to account for 30 per cent of total investments, an increase over the 25 per cent experienced in 2015 and well above the long term trend of 10 per cent.
“Foreign investors have a lower required return expectation than domestic investors and have purchased some of the largest retail assets in 2016, particularly in Melbourne and Sydney,” said CBRE senior research manager, Australia, Danny Lee.
This includes Charter Hall’s Pakington Strand Shopping Centre in Geelong West which sold in September for $31,800,000 on an initial yield of 4.92 per cent to a Chinese investor. Another Chinese investor picked up Woolworths anchored Pimpama Junction in Queensland for $38,650,000 in April.
Mark Wizel, national director, Australian Retail Investment Properties said investors are viewing retail as the most attractive asset class due to it having the best risk adjusted return.
“The retail sector is now contributing 31 per cent to total commercial property transactions, compared with 25 per cent two years ago,” said Wizel.
CBRE’s latest Retail Marketview report showed that nationally, retail yields compressed on average 50bps in 2016, with the largest compressions experienced by neighbourhood shopping centres (60bps) and large format retail (60bps).
Rent growth coupled with yield compression saw strong growth in capital values, particularly in the Sydney CBD, which has encouraged some owners to take advantage of conditions and dispose of assets. Foreign buyers have been actively seeking CBD assets and are willing to pay a higher price to acquire them.
“Neighbourhood shopping centres in all states including Tasmania continue to remain high on the shopping list of a range of private, corporate and institutional investors,” said Wizel.
“However, it has been the emergence of the Chinese buyer for such assets that is starting to add significant pricing competition into the sector with yields continually achieved around the country at less than 5.25 per cent.
“Large format retail is also attracting foreign investors, particularly Chinese buyers who are seeking exposure to retail and with the lack of shopping centres being made available to the market are aggressively chasing large format retail assets.
High house prices and the low interest rate environment are increasing renovations and driving household goods expenditure in large format retail centres. Nationally in 2016, Victoria saw the fastest growing LFR rents, increasing 6.2 per cent y-o-y.
CBRE said the sale of Sunbury Showrooms represented the first instance of “what will be a large wave of Asian capital moving into the Victorian large format retail centre market.”
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