Suburban shopping malls thrive as investors see value
Suburban shopping malls accounted for the largest share of retail investment activity last year, a sign of their good value compared with their CBD counterparts, a new report says.
Medium-sized shopping centres away from CBDs dominated sales in 2016, making up 28 per cent, or $2.1 billion, of total sales, according to JLL’s Shopping Centre Investment Review.
It’s a familiar theme, with these sub-regional centres having posted strong performances in recent years, said Simon Rooney, JLL’s Head of Retail Investments Australasia.
“Sub-regional assets have been the most highly traded category for each of the last four years,” he said.
“Investors continue to be attracted to this retail sector given their defensive nature and the relative value proposition that it offers in terms of the attractive yields, inbuilt growth and value-add opportunities, to drive returns through active asset management strategies.”
Vicinity Centres’ portfolio sell down was the key driver for sub regional sales in 2016, accounting for 61 per cent of all sub-regional shopping centres sold in 2016.
Sub-regional sales edged out CBD transactions for top spot in 2016. Graphic: JLL
The group offloaded several high profile assets in 2016, including its largest, Forest Hill Chase, 18 kilometres from the Melbourne CBD.
Blackstone acquired three of the malls for a total of $613.3 million: Clifford Gardens in Queensland, Forest Hill Chase and Brimbank shopping centre in Victoria.
Mirvac purchased Vicinity’s shopping centre at Toombul in Queensland for $228.1 million.
JLL predicts that demand for sub-regionals will continue unabated into 2017.
“Investors are looking to the sub-regional sub-sector for relative value, given the lack of availability of regional shopping centres, and the attractive yield relative to neighbourhood centres, which have experienced significant compression in the last 24 months. Demand has been particularly strong for non-discretionary based sub-regional centres with limited supply in the catchment and attractive growth profiles,” the report reads.
Sub-regionals have enjoyed a four year run at the top. Graphic: JLL
Demand was strong for the larger regional shopping centres too, according to JLL, and a lack of supply – just one centre since 2014 – meant values were largely based on sub-regional performance.
That could change in 2017, with the report stating “We expect that some regional centres may become available for sale in 2017 as owners seek partners for major re-developments, either on a fund-through or an on-completion basis”.
Across the sector, foreign buyers are set to continue their presence in 2017 according to Mr Rooney.
“Australia is expected to attract a high proportion of offshore capital again in 2017, given retail yields in Australia remain high in a global context and market fundamentals are relatively stable,” Mr Rooney said.
“Australia’s status as a low-risk investment destination with high levels of market transparency and the opportunity to secure large, institutional grade, core and core-plus assets, continues to drive significant demand from global investors.”
