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16-07-2014, 11:48 PM
Shopping centres full but rents on hold
KYLAR LOUSSIKIAN THE AUSTRALIAN JULY 17, 2014 12:00AM
Redevelopment begins at Pacific Fair in Queensland. Picture: Brendan Radke Source: Supplied
SHOPPING centre rents will be subdued or may fall for at least the next two years, according to industry analysts and investment brokers, even as vacancy rates remain low and investors continue to flood into the sector.
Difficult trading conditions have already seen the collapse of retailer Discount Super Group, owner of the Crazy Clarks and Sam’s Warehouse chains.
The company is closing 39 stores, and The Australian understands a further 25 store closures will be announced tomorrow.
Figures compiled by real estate agency JLL show retail vacancy rates fell 0.2 per cent across Australia for the six months to the end of June to sit at 3.8 per cent, driven by falling vacancies at the subregional and CBD level.
Retail rents have shown little movement in the past five years, according to BIS Shrapnel analyst Maria Lee. Figures provided to The Australian show regional shopping centres have recorded rent growth of only 1.1 per cent a year over the past five years. Similarly, subregional centres have seen rent increases of 0.8 per cent a year for the five years, while neighbourhood centres are up by 0.7 per cent.
Ms Lee said all categories had seen little or no movement for the past two years, meaning rents had gone backwards once adjusted for inflation.
She said anecdotal evidence suggested rent incentives had also increased in the past five years.
“Landlords Westfield, GPT and CFS Retail are more skewed to major regional and super-regional centres, where there was more discretionary spending, and are more exposed to underperforming department stores and speciality clothing retailers,” Ms Lee said.
“We had a period where rents were growing faster than turnover and occupancy costs were going up, and that can’t happen indefinitely,” she added, suggesting the adjustment process could run for the next two or three years.
That trend was confirmed by JPMorgan broker Adam Fairfax, who said his figures showed rent reversions across the industry of between -5 per cent and -6 per cent over the last financial year.
“This typically comprises -2 to -4 per cent for sitting tenants and -7 to -9 for new tenants,” Mr Fairfax said.
He said the declines were “likely to continue for the next six to 12 months before rents are deemed to be at market levels”.
In March, Westfield Group reported the 500 leasing deals across its Australian and New Zealand portfolio had been struck at rents 4.6 per cent lower than the expiring lease, even while occupancy remained at 99.5 per cent.
Other real estate investment trusts, including Federation Centres, were less affected because their portfolio was skewed towards subregional centres and convenience stores, according to Brandon Phillips, Federation’s external affairs manager.
“This means there is a bias towards non-discretionary retail spending and our sales are not so influenced by fluctuations in consumer sentiment,” Mr Phillips said.
But larger “destination” centres and areas should be better placed to withstand any weakness in retailers and trading conditions, according to Mr Fairfax, and redevelopments would continue, albeit on a more conservative basis and led by better-quality centres.
Owners such as AMP Capital Shopping Centres were actively pursuing “destination” strategies with redevelopments at Macquarie Centre and Pacific Fair, hoping to entice international retailers, tourists and to keep shoppers in the centre for longer periods.
CBRE’s Melbourne retail specialist, Zelman Ainsworth, said international brands were helping sustain growth, with J Crew and Paul Shark “aggressively looking for big flagship stores” before expanding to Melbourne’s Chadstone and other destination shopping centres.
Mr Ainsworth said United Colors of Benetton was also “very close” to signing a lease.
BIS Shrapnel expects retail construction commencements to peak in 2016, with regional shopping centres beginning to dust off expansion plans shelved in the wake of the global financial crisis.
KYLAR LOUSSIKIAN THE AUSTRALIAN JULY 17, 2014 12:00AM
Redevelopment begins at Pacific Fair in Queensland. Picture: Brendan Radke Source: Supplied
SHOPPING centre rents will be subdued or may fall for at least the next two years, according to industry analysts and investment brokers, even as vacancy rates remain low and investors continue to flood into the sector.
Difficult trading conditions have already seen the collapse of retailer Discount Super Group, owner of the Crazy Clarks and Sam’s Warehouse chains.
The company is closing 39 stores, and The Australian understands a further 25 store closures will be announced tomorrow.
Figures compiled by real estate agency JLL show retail vacancy rates fell 0.2 per cent across Australia for the six months to the end of June to sit at 3.8 per cent, driven by falling vacancies at the subregional and CBD level.
Retail rents have shown little movement in the past five years, according to BIS Shrapnel analyst Maria Lee. Figures provided to The Australian show regional shopping centres have recorded rent growth of only 1.1 per cent a year over the past five years. Similarly, subregional centres have seen rent increases of 0.8 per cent a year for the five years, while neighbourhood centres are up by 0.7 per cent.
Ms Lee said all categories had seen little or no movement for the past two years, meaning rents had gone backwards once adjusted for inflation.
She said anecdotal evidence suggested rent incentives had also increased in the past five years.
“Landlords Westfield, GPT and CFS Retail are more skewed to major regional and super-regional centres, where there was more discretionary spending, and are more exposed to underperforming department stores and speciality clothing retailers,” Ms Lee said.
“We had a period where rents were growing faster than turnover and occupancy costs were going up, and that can’t happen indefinitely,” she added, suggesting the adjustment process could run for the next two or three years.
That trend was confirmed by JPMorgan broker Adam Fairfax, who said his figures showed rent reversions across the industry of between -5 per cent and -6 per cent over the last financial year.
“This typically comprises -2 to -4 per cent for sitting tenants and -7 to -9 for new tenants,” Mr Fairfax said.
He said the declines were “likely to continue for the next six to 12 months before rents are deemed to be at market levels”.
In March, Westfield Group reported the 500 leasing deals across its Australian and New Zealand portfolio had been struck at rents 4.6 per cent lower than the expiring lease, even while occupancy remained at 99.5 per cent.
Other real estate investment trusts, including Federation Centres, were less affected because their portfolio was skewed towards subregional centres and convenience stores, according to Brandon Phillips, Federation’s external affairs manager.
“This means there is a bias towards non-discretionary retail spending and our sales are not so influenced by fluctuations in consumer sentiment,” Mr Phillips said.
But larger “destination” centres and areas should be better placed to withstand any weakness in retailers and trading conditions, according to Mr Fairfax, and redevelopments would continue, albeit on a more conservative basis and led by better-quality centres.
Owners such as AMP Capital Shopping Centres were actively pursuing “destination” strategies with redevelopments at Macquarie Centre and Pacific Fair, hoping to entice international retailers, tourists and to keep shoppers in the centre for longer periods.
CBRE’s Melbourne retail specialist, Zelman Ainsworth, said international brands were helping sustain growth, with J Crew and Paul Shark “aggressively looking for big flagship stores” before expanding to Melbourne’s Chadstone and other destination shopping centres.
Mr Ainsworth said United Colors of Benetton was also “very close” to signing a lease.
BIS Shrapnel expects retail construction commencements to peak in 2016, with regional shopping centres beginning to dust off expansion plans shelved in the wake of the global financial crisis.