JLL Research statistics for 3Q 2014 on the national retail market shows the yield compression cycle has accelerated, with a broad-based tightening recorded across all retail categories.
JLL Research shows average retail yields across all shopping centre formats tightened by 15 basis points from 7.69 per cent in 2Q 2014 to 7.54 per cent in 3Q 2014, representing the greatest quarterly decline since yields reached their peak in December 2009.
JLL’s Head of Retail Investments Australia, Simon Rooney said, “The rate of yield compression has accelerated and it has become more broad-based across different retail formats. It is the result of investors seeking to build their portfolios, an increased appetite for risk and a more positive outlook for property fundamentals.”
“Retail transaction activity has increased since June and has now reached AUD 4.5 billion in 2014 for the year-to-date.
“Transaction volumes are already 8 per cent above the long-term annual average as at October.”
“Investors are attracted to the stability of the retail sector. However, there are limited opportunities to acquire good quality centres with positive trade area fundamentals and minimal supply risk.
“Increasingly, investors are willing to lower their return expectations for the sector and as a result, we have recorded a downward shift in yields for all retail categories,” said Mr Rooney.
• The fund recapitalisation of Lend Lease REP3, which comprised five sub-regional centres, for a reported value of greater than AUD 600 million;
• The sale of Birkenhead Point for AUD 310 million to Mirvac on behalf of Abacus and the Kirsh Group;
• A 50 per cent interest in 101 Miller Street & retail centre, Greenwood Plaza sold to TIAA Henderson Real Estate for in excess of AUD 300 million on behalf of Eureka Funds Management;
• Federation Centres (25 per cent) and TIAA-Henderson Real Estate’s (75 per cent) acquisition of Mt Ommaney for AUD 416.25 million; and
• AMP’s acquisition (via AMPCSCF) of a half share in Stockland Townsville for AUD 228.7 million.
JLL Research recorded the most pronounced compression in yields for the sub-regional sector. Overall, the average yield for sub-regional centres compressed by 23 basis points over the quarter.
There is scope for further yield compression in the sub-regional category. Spreads between regional and sub-regional centres remain wider than historical benchmarks. A number of investors have identified opportunities to reconfigure sub-regional assets and re-work the tenancy mix.
CBD, regional and neighbourhood yields each showed a further 15 basis points tightening while bulky goods tightened by 5 basis points in Q3-2014.
Source: JLL Research
JLL’s National Retail Analyst, Andrew Quillfeldt said, “While there hasn’t yet been a broad-based recovery in market rents, some markets and sub-sectors showed positive uplifts in 3Q 2014, including the Melbourne and Brisbane CBDs.
“The positive trend in retail spending growth is increasingly supportive of leasing conditions, particularly in Sydney and Melbourne where growth has rebounded notably. We expect the rental growth recovery to accelerate in 2015.”
Landlords continue to progress with redevelopment projects. Novion Property Group commenced a 19,600 square metre expansion to Chadstone in 3Q 2014.
Mr Quillfeldt said, “The pipeline of projects under construction has been gradually rising over the four years to 2014 but has now begun to stabilise at approximately 800,000 square metres in the last four quarters (797,000 square metres in 3Q 2014).
This reflects a moderate pipeline compared with historical levels, and is approximately 42 per cent lower than the previous peak of 1.4 million square metres in 3Q 2008.
“There is an additional 1.2 million square metres of retail space with planning approval which could translate into new supply over the next few years. Regional shopping centres account for the largest share at 30 per cent of the overall pipeline. However, we expect landlords will continue to progress selectively with redevelopment projects, as has been evident so far throughout this supply cycle,” Mr Quillfeldt said.