Bumper sales forecast for retail property

Myer’s Bourke St Mall in Melbourne.

The volume of retail property sales is tipped to hit record levels this year, with a series of major portfolios, ranging from offerings by Blackstone and LaSalle Investment Management to Charter Hall Retail REIT, on the block.

While the $4 billion Blackstone offering, handled by real estate agent JLL and investment banks UBS and JPMorgan, dwarfs many of the individual assets on the market, the wide range of properties for sale and the elevated pricing on property assets could see previous records breached.

JLL’s latest outlook for the Australian retail investment market reports a trend towards a high rate of turnover for shopping centres has been running for the past five years, partly driven by offshore interest in the sector.

Offshore investors swooped on $2.3 billion worth of shopping centres last year, slightly below the $2.5 billion recorded in 2015, although this will likely surge on the back of the Blackstone deal.

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JLL’s annual Shopping Centre Investment Review and Outlook Report reveals total retail transactions hit $7.3 billion last year, down about 18% on the record high of $8.9 billion in 2015.

Major deals were struck in the heart of Melbourne, Sydney and Perth, and JLL said that CBD and subregional shopping centres were the standout performers of the year with $1.9 billion worth of CBD shopping centres changing hands.

Keenly contested subregional centres accounted for the bulk of activity by subclass last year at $2.1 billion and are again expected to be the major focus of attention for domestic and offshore investors.

But it was the eye-catching yields at which major CBD assets sold at that defined the year. Major deals included Scentre Group and CBUS Property buying David Jones Market Street Sydney for $360 million on a 4.5% initial yield.

Australia is expected to attract a high proportion of offshore capital again in 2017, given retail yields in Australia remain high in a global context and market fundamentals are relatively stable

NGI Investments snapped up a 75% interest in Sydney’s MidCity Centre, JPMorgan’s asset management unit bought Melbourne’s St Collins Lane project and TH Real Estate swooped on a one-third interest in city landmark Myer Bourke St.

“Investor demand remains very strong from domestic and offshore capital sources,” says JLL’s head of retail investments Australasia, Simon Rooney.

“Demand continues to outweigh supply of investment product, resulting in surplus capital which is yet to be deployed and driving competition-led yield compression.

“Australia is expected to attract a high proportion of offshore capital again in 2017, given retail yields in Australia remain high in a global context and market fundamentals are relatively stable.”

In addition to the Blackstone portfolio, Rooney suggests that domestic shopping centre owners will selectively dispose of or offer passive joint venture interests in assets to fund developments and bolster portfolios.

There was just one regional shopping centre transaction last year — the unlisted GPT Wholesale Shopping Centre Fund selling its half share in Westfield Woden to Perron Group for $335 million.

JLL expects a small number of regional shopping centres could hit the market over the next two years as owners seek strategic partners for major redevelopments and capitalise on favourable market conditions.

Rooney notes the capital intensive nature of regional shopping centre redevelopments and says a number of major owners could seek partners on major assets. About $1.6 billion worth of neighbourhood centres changed hands last year, most in Queensland.

This article originally appeared on www.theaustralian.com.au/property.