The growth in Western Australia’s retail property market is fast approaching that of the state’s commercial offices and industrial sectors.
With at least eight shopping centres in Western Australia undergoing significant expansion and several new centres around the state on the drawing board, it doesn’t take long to regognise that Western Australia’s retail scene is booming.
Apart from the investment of billions of dollars into development of WA’s retail sector, WA shoppers are playing their own part by leading the nation in retail spending.
According to the latest Australian Bureau of Statistics figures, WA retailers posted turnover of $23.15 billion over 2006-07, almost 10 per cent up on the $21.2 billion achieved the previous financial year.
Shopping Centre Council of Australia executive director Milton Cockburn said he was surprised at how well the WA retail market was performing and expected conditions to continue to remain buoyant.
“Turnover is incredibly high, so much so that it’s exceeded rents and forcing occupancy cost ratios to decline. I expect it won’t take long before landlords pick up that slack and charge higher rents,” he said.
The growth in WA’s retail sector is almost mirroring that of the commercial office and industrial sectors, which can be directly attributed to the strength of WA’s resource rich economy in creating low unemployment, higher wages and an unquenchable thirst for ‘space’.
Savills research reveals about 221,200 square metres of retail accommodation is currently under construction, of which 70,000sq m is due to come online before the end of the year.
Much of the activity is in the form of extensions and upgrades to existing centres, which have major residential developments either proposed or underway nearby.
Lakeside Joondalup shopping centre will become the second largest centre in WA (behind Morley’s Centro Galleria) when its expansion from 41,000sq m to 71,000sq m gross lettable area by ING Real Estate is completed later next year.
The centre will only just clinch the second spot from AMP Capital’s Garden City shopping centre which has a 70,402sq m GLA.
ING is also busy expanding its Armadale Shopping City from 21,310sq m to 31,000sq m, which will be anchored by Target when complete early next year.
Elsewhere in Perth’s southern suburbs, expansions are under way at Perron Group’s Cockburn Gateway shopping centre from 10,490sq m to 29,900sq m, Rockingham City from 47, 412sq m to 62,000sq m by Colonial First State and the soon to be completed Centro Mandurah, which will expand from 34,759sq m to 53,100sq m.
Population growth is also occurring closer to the city, as developers are waking up to the benefits of urban infill and the demand for residential apartments.
In Claremont, Hawaiian and Multiplex are embarking on a $200 million redevelopment and refurbishment of the Claremont Arcade Shopping Centre on Bayview Terrace, which will expand the centre’s floor space from 9,259sq m to 30,000sq m, over two levels.
The development is expected to create even more activity on the busy shopping strip, with 102 residential apartments planned alongside 600sq m of office space and about 1,500 car bays.
Fremantle is also earmarked for a major injection of new retail activity within the next two to three years with the development of Victoria Quay with 12,000sq m of retail, restaurant and café space below two contemporary office buildings of 14,000 square metres.
ING Real Estate has strong support from the Fremantle Chamber of Commerce to transform the heritage precinct, however some sections of the community and local council are proving difficult for the developers to win over.
In the meantime, Perth is in line for the opening of more neighbourhood centres, the first of which will open in Carramar and Ellenbrook in the coming year.
While many institutional investors upgrade and expand their existing portfolio of assets, a number of them are looking to boost their stocks.
Major assets to change hands in the past 12 months include the Midland Cinema complex for $5.5 million, the Ikea site on Scarborough Beach Road Osborne Park for over $19 million and City Central in the Murray Street Mall for $71.3 million.
Over the past ten years, Savills Research reveals total returns in the WA retail market were 17.8 per cent, at least one percentage point above the office market at 16.8 per cent and industrial market with 13 per cent.
Jones Lang LaSalle director of sales and investment Nigel Freshwater said much of the quality retail property in WA was tightly held at present because of the increase in retail turnover.
He said despite the situation, several institutions were buying and selling retail assets in a short period of time to take advantage of the strong market conditions, the most recent being GE Real Estate and its sale of the 160 Central retail and office complex in the CBD after only 15 months.
“Demand for quality retail assets in WA is extremely high. We’re seeing a lot of cashed up local buyers and syndicates, as well as institutional investors and trusts from the east coast looking to buy in Perth. Since the beginning of the year, CBD retail yields have firmed by a half of a per cent to the current range of 5.5 per cent to 7.5 per cent,” he said.
Mr Freshwater said he expected yields to tighten further next year, with modest rental growth forecast.
“We’ve been asking ourselves this question over the past 12 months ‘just how low can it go?”