Offshore investors have driven Australia’s retail real estate investment market to hit a record AU$8.4 billion last year, with momentum expected to continue into the rest of 2016, according to JLL’s Australian Shopping Centre Investment Review & Outlook report.
In the fourth consecutive record year, total transaction volumes in 2015 climbed 12.6 percent y-o-y, with Asian investors accounting for $1.2 billion of activity. Among the region’s buyers, Singapore investors were the most active, purchasing over AU$600 million worth of assets, followed by China with AU$155 million, and sub-regional shopping centres continued to prove the preferred asset type.
“Owners were cognisant of the significant volume of primarily offshore capital that is seeking transaction scale in highly transparent and low-volatility markets, while also taking advantage of the weaker AUD and historically low debt costs,” says Simon Rooney, JLL’s Head of Retail Investments Australasia.
Rooney expects investment conditions in 2016 to remain ideal for another year of “elevated trading” of retail assets. “Demand will again be led by offshore investors and wholesale funds seeking scale and low volatility. Some investors are likely to target assets with high retail turnover and rental income growth potential.”
Offshore investors were the largest net buyers in 2015, purchasing the highest level of retail assets in Australia on record at AU$2.4 billion, more than twice the value of assets recorded in 2014.
Unlisted funds acquired AU$1.9 billion, taking a 23 percent share while other categories included: private investors (17 percent), A-REITs (11 percent) and superannuation funds (9 percent).
The record volume of acquisitions was accompanied by record low yield for major core assets as investors competitively pursued properties with solid income growth outlook. “As we move into the next phase of the investment cycle, yield compression will no longer be the major driver of returns in 2016 and investors are likely to focus on assets that can deliver the highest potential for income growth in order to drive capital values and returns,” says Rooney.
JLL’s Retail Research Director, Andrew Quillfeldt, also expects continued healthy retail spending, stimulated by low interest rates, to help support market fundamentals.
“Strong growth in house prices in Sydney and Melbourne has boosted household wealth and confidence, and solid residential construction activity has also been driving strong growth in household goods spending,” he says. “A further depreciation of the Australian Dollar has been a positive for CBD retail markets in particular, because of the subsequent increase in inbound tourism.”
Based on JLL’s projections, overall leasing market conditions will remain generally unchanged from 2015. Despite a high level of development activity occurring, the retail market is unlikely to be oversupplied over the 2016-2018 period, partly because there is a high level of refurbishment of existing space occurring, says the report.
“On balance, the fundamentals for the overall retail market remain relatively sound and continue to be in a slow and gradual recovery,” says Quillfeldt.
“The stable market fundamentals of retail assets in comparison with other property sectors will continue to attract investors. Elevated volatility in financial markets and other asset classes will highlight the stability of direct retail property returns,” concludes Rooney.
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Head of Retail Investments - Australasia