Who is buying Australia’s retail space?
A major jump in sales of retail space valued between $50 million and $100 million underpins a successful year for the sector, according to a Savills Australia report.
The agency sold $5.3 billion worth of retail properties in the year to the end of June, with those in the $50 million-$100 million category totalling about $1.5 billion – more than twice as much as the 10-year average.
Along with Savills’ tally of almost $6 billion in the previous year, this year’s sales consolidate the national market’s position towards pre-GFC levels.
“The retail sector always faces cyclical and structural issues. Some cyclical issues are starting to move in its favour,” the Insight Australian Retail Market report says.
In the year to the end of June, institutions were the most active, snapping up 59% of retail holdings on Savills’ books.
Institutions were the most active, snapping up 59% of retail holdings on Savills’ books.
Read more: Who owns Australia’s shopping centres?
“Institutional investors have re-entered the market with freestanding assets and shopping centres high on their list,’’ the report says.
“Furthermore, local conditions have caught the attention of international investors, as good quality; tightly-held assets have been available.”
But the report says returns from the retail sector are likely to be constrained for the foreseeable future.
“Changes in consumer spending patterns since 2007 appear to have had an adverse effect on department store, apparel and discretionary retailing turnover generally,” Savills notes.
“This has impacted tenants in regional and some sub-regional shopping centres. Lower turnover combined with increasing rents has led to some specialty occupancy costs rising to an average of over 22% in regional shopping centres.”
Savills says that while this level would probably be unsustainable, consumer confidence is improving along with low interest rates.
Read more: What is retail real estate?
Offshore designs on Melbourne retail
Unprecedented demand is continuing from off-shore investors wanting to buy Australian retail property, according to agency Fitzroys.
A South Yarra property occupied by furniture designer Matt Blatt was sold to international investors for $6.35 million by Fitzroys recently.
It followed the purchase by an off-shore buyer of the OPSM shop at 137 Toorak Rd, South Yarra, for $1.6 million.
The latest transaction was a single-storey shop at 507 Chapel St plus a two-storey warehouse at 1B Davison Place. The properties are leased to Matt Blatt for $320,000 a year and the sale reflected a yield of 5%.
The OPSM property also recorded a yield of 5%.
Fitzroys’ Michael Rainey says the South Yarra and neighbouring suburbs’ fundamentals were very strong thanks to a fast-growing population in the area.
South Yarra and neighbouring suburbs’ fundamentals are strong thanks to a fast-growing population in the area.
“Enquiries from retailers has increased in recent months, which has been reflected by the recent arrival to Chapel St of notable Australian retailers Kookai and Diesel,” Rainey says.
“A number of international fast fashion retailers are continuing to circle the strip, however they simply cannot find the appropriate sized tenancies of at least 1000sqm-plus.”
Leighton gets green nod in Perth
Leighton Properties has been hailed by Green Building Council Australia for its efforts in building sustainability into its Perth Kings Square project.
One of the four towers under construction, KS1, has been awarded a 5 Star Green Star – Office Design v3 certified rating.
Council Chief Executive Romilly Madew describes the development as a “holistic approach to green design” and notes Leighton’s “determination to drive the green building agenda in Western Australia”.
Leighton’s Bradley Norris says: “The KS1 certification is the first milestone in creating what will become a world class, environmentally-sustainable precinct in the heart of Perth’s CBD.”
At 23,000sqm, KS1 is the largest of the towers, accounting for more than a third of the total 60,098sqm of commercial and retail A-grade space due to be complete mid next year.