26/09/2013 - 14:18

$1.5bn shopping centre plans boost prices

26/09/2013 - 14:18

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Strong population growth and changes to retail regulations are driving shopping centre sales.

$1.5bn shopping centre plans boost prices
DEVELOPMENT: An artist’s impression of the planned expansion of Whitford City, which has a $192.2 million price tag.

PERTH’S major shopping centres are poised for a multi-billion makeover in the next decade as owners scramble to transform their retail emporiums into contemporary town centres.

The state’s major retail owners, including Perron Group and AMP Capital, have already committed more than $1.5 billion to expansion strategies, including a $192.2 million proposal for Westfield’s Whitford City and a $400 million plan for AMP’s Garden City in Booragoon.

Westfield’s unexpected divestment of its stake in Karrinyup Shopping Centre earlier this month is likely to trigger further activity.

Perron Group has forecast a decade-long wave of redevelopment activity as shopping centre owners take advantage of more liberal retail regulations in Western Australia, which for many years has restricted the size of centres and trading hours.

State legislation has kept the lid on retail development in WA for decades, and its effect is writ large in the Shopping Centre Council’s league ladder of Australian shopping centres, which ranks Perth’s biggest centre, Westfield Carousel, in 36th position.

However legislative changes introduced in 2010 and 2012 represent an opportunity for existing owners, who have seen little if any rental growth in the past year on the back of failing consumer sentiment and an uncertain economic outlook.

Another fillip for the sector has been the introduction of Sunday trading, along with WA’s strong population growth, particularly for acquisitive institutions such as Charter Hall.

While Charter Hall’s $458 million purchase of Raine Square in June significantly boosted the national property group’s profile in WA, it had already built a network of neighbourhood centres in Perth and regional areas.

Charter Hall’s not alone in chasing strong neighbourhood centres and the highly sought after sub-regional retail properties in WA.

Competition for retail property in WA is fierce, pushing valuations back to pre-GFC levels, as demonstrated by Westfield’s sale of its one-third stake in Karrinyup Shopping Centre.

Majority owner UniSuper paid $246.6 million for Westfield’s interest, a hefty price that was 19 per cent higher than Westfield’s book value for the investment and set a new low-water mark for shopping centre sale yields.

The transaction has triggered a tussle over Westfield’s Innaloo Shopping Centre and adjoining retail sites.

Charter Hall is pushing to acquire the centre through the exercise of a put option that was struck as part of an agreement Westfield negotiated with the corporate regulator in the event it increased its stake in Karrinyup.

Westfield’s surprise divestment of Karrinyup has sparked speculation from retail analysts it will now hold on to Innaloo and potentially expand and redevelop the property.

Head of retail asset management John Courtney said Charter Hall was heavily focused on centres anchored by Coles or Woolworths and sub-regional centres in strong regional centres in WA.

“It’s the supermarkets that generate the foot traffic, and from December 2008 the supermarket sales growth across the whole country has never gone negative,” Mr Courtney told Business News.

“Both Coles and Woolworths across the country are tracking at between 3 and 4 per cent sales growth … so we focus on that non-discretionary spend. Everyone’s got to eat and we make sure we have the dominant supermarket in a catchment.

“The properties we have looked at in WA and done developments in are all in high growth population areas like Wanneroo and Secret Harbour.”

The interest in WA centres reflects a maturation of the state’s retail sector, according to Jones Lang LaSalle’s WA sales and investments manager, Sean Flynn, as well as a softening in returns from the office sector.

He said the maturation of the local office market drew the attention of the institutional investors, who accepted that Perth was now a business centre in its own right and home some of the biggest corporations in Australia.

 “The institutions’ other divisions started looking at retail assets for the same reasons, because Perth had hit its straps and its base is very solid, it’s a resource base but its more consistent than it has ever been,” Mr Flynn said.

He said the sale campaign for Secret Harbour, which Charter Hall acquired for $33.2 million, attracted inquiries from a lot of institutional buyers as well as offshore investors, high net worth individuals and syndicators.

“That’s another change in the market that an asset of that size would attract the interest of the likes of Charter Hall,” Mr Flynn said.

“That’s because they have a strong view that value-add opportunities are the key and that centre has a three-hectare expansionary site; so it’s started out as a $33 million acquisition but the centre could end up being worth $70 million.”

The state’s strong population growth and comparatively sound economic outlook has also attracted the interest of overseas buyers, particularly from South-East Asia.

Singaporean Rockworth Capital Partners paid $75.8 million for the Phoenix Shopping Centre in February, just months after buying the Altone Park centre for $15.9 million.

Queensland Investment Corporation outbid superannuation funds and rival institutions to acquire a half share in the Claremont Quarter Shopping Centre for $171.5 million early this year.

Sales price for greenfields retail sites are also strong, courtesy of the competition between the supermarket giants to secure footholds in these new areas.

This ongoing battle has pushed land prices for retail-zoned land from $200-$250 per square metre as high as $300/sqm, and the imminent arrival of supermarket chain ALDI is also having an impact.

Mr Flynn said ALDI had a rigid store model but it was willing to look at a broad range of sites, including big-ticket land parcels earmarked for apartment development.

ALDI has a preference to own its properties but it has also partnered with retail developers on the east coast to get the most out of a site.

The Barnett government’s Activity Centres Policy aims to transform retail centres into integrated communities with a blend of commercial, retail and housing, but not all the big shopping centre owners are keen to diversify into residential development.

Construction of 10 residential units is under way at AMP Capital Shopping Centres’ Ocean Keys centre, but this key component of the $105 million expansion does not point to plans to diversify into residential redevelopment.

Like fellow retail owner Perron Group, AMP would prefer to stick with retail property and leave housing to the experts in that field.

It is only undertaking the residential development at Ocean Keys because it’s such a small component of the overall project, and AMP was unable to find a suitable partner to take it on.

“We are a not a residential developer and that is where we would rather have a partner that does the residential component, “ AMP Capital Shopping Centres managing director Bryan Hynes said.

“At Booragoon we have an adjoining land owner who is very good in the residential space and we would prefer they do the residential development and we’ll do the retail side.

“It gets back to the old adage know what you’re good at and stick to it.”

The Ocean Keys redevelopment will create a main street through the centre as well as a significant food precinct.

It’s an influential trend evident across all the major expansion projects in WA’s retail sector, as owners work to transform centres into community hubs.

Hawaiian Group refers to its centres as the ‘third place’ and AMP calls it the live/work/play balance where commercial, retail and residential are integrated to create a town centre feel.

Whatever the jargon, the goal is the same and that’s giving shopping centres – once big boxes surrounded by car parks – a softer, human scale and feel.

When successfully developed, these shopping centres become regular catch-up points and the properties take on a new role as a community meeting point.

You can see the influence of this thinking across all the redevelopment plans in Perth, including Westfield’s proposal for Whitford City, the Cockburn Gateway expansion and AMP’s $400 million plan for Garden City.

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