Sydney, 12 February 2014 – Australia’s retail market is entering an upward cycle, with improved levels of consumer sentiment as a result of the healthier economic outlook boosting spending levels across the sector.
The CBRE Q4 Australia Retail MarketView highlights that the pace of retail sales improved significantly in the final quarter of the year, with retail turnover lifting 4.7% in the year to November 2013.
The large format asset class of the retail market has re-emerged as a dominant growth sector, with improved household wealth and consumer confidence underpinning an increase in dwelling starts.
CBRE Senior Research Manager Claire Cupitt said the large format sector was closely aligned with residential market activity.
“Dwelling starts rose 24% in the year to November 2013, underpinning consumer demand for household goods associated with new homes and alternations/additions,” Ms Cupitt said.
“This improved environment for large format retailers is expected to support rental growth in the market over 2014, which will be largely welcomed following a long period of lacklustre growth.”
In 2013, the large format retail market recorded 1.1% growth and is expected to rise a further 1.7% in 2014 and 2.2% in 2015.
By comparison, regional shopping centres recorded 0.1% growth in 2013, with this projected to rise by an improved 1.4% in 2014 and 2.5% in 2015. Prime CBD retail experienced 0.6% growth during the same period, with 0.6% and 1.6% forecast for 2014 and 2015 respectively.
CBRE Head of Large Format Retail Australia Chris Parry said the large format sector in Australia was evolving, offering more secure and diversified retail mixes which would continue to drive demand, rental growth and ultimately yield compression in the sector.
“With the housing sector gaining momentum, large format retail assets will continue to perform strongly, particularly in New South Wales and Victoria where concentrated levels of growth remain,” Mr Parry said.
“Whilst new supply has slowed nationally in recent times, we are beginning to see a lift in construction. Developers and lenders are beginning to see the market as an opportunity, and previously mooted developments, are now either under construction or about to commence.”
Recent examples of new large format retail supply include the Joondalup Square development in Western Australia, which is anchored by Bunnings and Super Amart Furniture; and the Millers Road large format retail centre, anchored by Bunnings, JB Hi-Fi and Officeworks. The Millers Road centre will also be home to the first supermarket in a Victorian large format retail centre.
In 2013, there was a significant increase in overall retail investment activity, lifting 70% from 2012 levels – accounting for $7.7 billion worth of assets changing hands during the 12 month period.
CBRE Regional Director of Retail Investments Neil Proudlove attributed strong investor appetite levels to the ongoing strong fundamentals offered by the Australian retail market.
“Investors continue to target Australian retail assets, particularly centres which are supported by strong tenant profiles, stable incomes and development, income or capital growth potential,” Mr Proudlove said.
"Strong investor interest has returned to the large format retail asset class, supported by the upswing in the dwelling construction cycle. In hindsight, this asset class has been ‘over-sold’ during recent years.” Strong investor interest has returned to the large format retail asset class, supported by the upswing in the dwelling construction cycle. In hindsight, this asset class has been ‘over-sold’ during recent years.”
He added: “Centres with strong retail covenants are providing astute investors with excellent property returns.”
Australia’s CBD retail markets enjoyed a strong Q4, particularly in New South Wales, where clothing and department store sales experienced an annual growth of 7%, compared to a national average of 3%.
Western Australia recorded the highest jump in capital values, with a 5% lift over 2013, followed by Queensland with 1.7% and New South Wales with 0.5%. South Australia and Victoria experience declines of 2.7% and 0.1% respectively. Nationally, CBD capital values increased 0.6% during the period.
The report shows the emergence of foreign retailers within prime strip locations has created fresh retail and choice offerings for consumers, which has helped attract shoppers back to CBD locations.
A new wave of international competition is expected to enter Australia’s CBDs in 2014, including Uniqlo, H&M, Hollister, River Island and Forever 21. Following the opening of its first Australian store in Victoria last December, Japanese retailer Muji is preparing to open two further stores this year.
The Sydney CBD retail market regained some of the losses experienced over the past two years, with prime CBD rents lifting 2.8% in 2013 following consecutive declines.
“The rejuvenation of certain CBD retailing and the draw to international brands is likely to stem growth in rents within prime CBD centres as owners offer substantial incentives to secure the associated foot traffic,” Ms Cupitt explained, adding that Australia’s CBDs were going through a major rejuvenation and growth period, with numerous centres nation-wide undergoing refurbishment or being built from scratch.
Following two years of weak results, regional centres nationwide experienced turnover growth of 3% over 2013 – a trend underpinned by solid performances from discount department stores and supermarkets.
By comparison, sub-regional centre turnover growth reached 3.4% during the same timeframe, supporting a strong supply pipeline of 64,225sqm currently under construction and a further 346,150sqm in planning.
Sub-regional transactions led the charge in retail asset sales during 2013, totalling $2.2 billion.
Western Australia saw the lion’s share of activity, with seven transactions accounting for $867 million worth of sales. Victoria and New South Wales also saw a marked increase in sales transactions during the year.
Neighbourhood centre turnover gained momentum in 2013, lifting 4.9% compared to 1.5% in the corresponding period.
Ms Cupitt said the growth was driven by the strong performance of supermarkets, with turnover lifting 5.2% in 2013 compared to 1.7% the year earlier.
“The intensive competition between supermarket giants Coles and Woolworths for market saturation is supporting strong levels development activity in the neighbourhood centre sector. Currently there is 70,250sqm under construction, of which a significant proportion relates to new Woolworths stores,” Ms Cupitt explained.
CBRE research also showed that neighbourhood sale volumes outpaced pre GFC levels in 2013, with transactions totalling $1.35 billion during the year. New South Wales and Victoria recorded more than $400 million in sales respectively.
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CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website atwww.cbre.com.au.