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Highly selective shoppers driving discrepancy in centre performance

Positive signs of a spending rebound continue to drive demand for retail assets in Australia, but buyers are becoming more cautious and selective about the types of properties they invest in, and are narrowing their strategies to focus on smaller, more refined portfolios.

This is according to the annual Australian Shopping Centre Investment Review and Outlook 2019 released on Thursday by real estate investment firm JLL.

The beginning of a recovery in wage growth and long-term demographic trends are encouraging retail investment, the report said, but the subdued housing market could offset the impact of the improvement in household income.

Operating conditions are expected to remain broadly stable for shopping centre owners in 2019, compared with the previous year, but JLL expects to see a divergence in the underlying performance of individual centres, as retailers and consumers remain selective towards their retail decisions. This in turn is driving investors to adapt their portfolios.

“Interest continues to remain strong for Australia’s retail assets because investors can see the value that currently exists due to a number of combining factors, including asset pricing, positive drivers for retail spending and the emerging relative value of yields compared with other asset classes,” JLL’s head of retail investments for Australasia, Simon Rooney, said.

“As the retail and shopping centre industries continue to evolve, owners, primarily AREITs, are narrowing their strategies. They are becoming more focused and specialised to extract value and maximise returns. In 2019, we expect to see them focus on smaller, more refined, portfolios of retail assets to maximise returns.”

In 2018, shopping centre transactions were relatively evenly split between the three major shopping centre formats – sub-regional (25 per cent), neighbourhood (23 per cent) and regional (21 per cent).

However, sub-regional activity increased notably in 2018, with transactions almost doubling from $1.1 billion in 2017 to $2 billion in 2018. Investors remain attracted to the high sub-regional yields relative to other retail formats.

Annual retail investment volumes have reached more than $6 billion for seven consecutive years, and topped $8.1 billion in 2018, the third highest year on record.

Two major acquisitions by Scentre Group and SCA Property Group drove most of the investment activity for retail in 2018, accounting for 80 per cent of acquisitions by AREITs, according to the report.

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