Housing supply a retail attractor

REALSIDE’S recent acquisition of Maddington Central caught the attention of the property industry, largely because it marked the syndicator’s first foray into the retail sector.

Realside, which owns a stake in Perth’s Palace Tower at 108 St Georges Terrace among other office assets nationally, is not renowned for its retail portfolio.

However, the company’s director, Mark Vonic, believed the opportunity to purchase the $107 million property from shopping centre giant Vicinity Centres was too good to miss.

Maddington Central contains a 27,661 square metre sub-regional, single-level shopping centre on 13 hectares of land.

As Mr Vonic explained, the surplus land was the drawcard.

“The idea started around observing the land that a lot of this retail sits on,” Mr Vonic told Business News.

“We have all sorts of issues in Australia and Perth around housing supply and infill and urban sprawl.

“You can go sixty kilometres north, fifty kilometres south, but [not] that far east, and there are all these opportunities for urban infill.

“The retail in and of itself is not necessarily the driving motivation; it’s about an underutilisation or an under-recognition of land.”

Mr Vonic said the value of the surplus land around Maddington Central, about 17 kilometres south-east of Perth central, had not been a consideration for the former owners.

“It’s not logical to me that you can have that amount of surplus land in a major capital city and not recognise any value,” he said.

Realside engaged apartment developer Sirona Urban to formulate a master plan for the site, which has the capacity for up to 500 apartments.

A more detailed plan will be finalised in coming months, with the centre likely to undergo a major overhaul within the next five years.

The centre’s high foot-traffic was also a major attractor for Realside.

“The turnover in the centre is over $200 million per annum, so it actually performs really well,” Mr Vonic said.

“It’s just not very attractive, and it hasn’t really had that level of investment that would bring it up to a contemporary sort of standard. So that tells me something really significant.

“If something that hasn’t been presented all that well still performs really well, that means that the demand there is quite high.”

A shopping centre of Maddington Central’s size typically caters for about 100,000 people. So, given the centre’s catchment is about 200,000, the high volume of visitors comes as little surprise.

Realside bought Maddington Central for $107 million earlier this year.

Realside has had its eye on the asset for at least a year.

“We first approached Vicinity twelve months ago and said ‘We’re actually really quite interested, are you looking to sell?’,” Mr Vonic said.

“The first response was ‘No, go away’. And we just sort of peppered away.

“That’s the reason that we pivoted to retail. It’s not so much about the retail, the retail is fine. It’s more about what we can do around it.”

Industry trend

Retail owners’ efforts to capitalise on underutilised land around shopping centre sites have gained significant momentum in recent years.

Y Research director Damian Stone said increasing the amount of residential development within retail-dominated activity centres was a focus for government and property owners.

“Changes to planning regulations have mandated a greater mix of non-retail [residential, medical and office] uses as part of future shopping centre development within Perth’s activity centres,” he said.

“At the same time, shopping centre owners have sought to increase visitation to their centres in the wake of the increased adoption of e-commerce.”

Blackburne is embarking on the second stage of its residential developments at Karrinyup Shopping Centre this year.

The $420 million apartment project includes more than 250 dwellings across two towers and will add to the developer’s existing 94-dwelling East Village, completed last year.

The Subiaco-based apartment developer is also planning a 246-apartment development across two towers at Ocean Village Shopping Centre in City Beach, which it bought in 2022.

In a development summary about the project, Blackburne said it would “transform the current rundown shopping centre into a vibrant mixed-use neighbourhood centre”.

In terms of its other market moves, Vicinity Centres made its first purchase in Western Australia for at least a year when it secured a half stake in Lakeside Joondalup from the national Future Fund for $420 million last month.

Prior to that, the retail giant had been engaged in a sell-off of its WA retail assets, divesting Midland Gate, Dianella Plaza, Karratha Shopping Centre and Maddington Central.

Vicinity announced the Lakeside Joondalup deal as it released its recent financial year results, with chief executive Peter Huddle spruiking the potential for a residential precinct around the site.

“It is on a significant landholding connected by rail in a principal activity centre in Perth,” Huddle said.

“We see opportunities from a retail point of view and, longer term, potentially some opportunities outside of retail.”

Vicinity also owns the Galleria Shopping Centre, in partnership with Perron Group.

The centre owners plan for a $350 million overhaul of the rundown centre has been hit by delays.

Vicinity Centres bought a half stake in Lakeside Joondalup for $420 million.

The project was put on hold in 2019, when Vicinity Centres said it was waiting for the retail market to proceed.

In 2023, Perron Group said it would go ahead with the expansion later that year, but there has been no progress on the ground to date.

Mr Huddle told an investors presentation last month the company was aiming to progress with the overhaul of the Galleria in late 2025.

He said was Vicinity focusing on redeveloping its high value assets Chatswood (NSW) and Chadstone (Victoria).

Landscape

Rising interest rates are putting pressure on consumer spending, with Australian Bureau of Statistics retail trade figures showing a decline in retail volumes.

The ABS’s latest national retail sales data shows retail sales volumes fell for the sixth time in the past seven quarters, with the most recent uptick in the December quarter.

In terms of monthly turnover, WA recorded the highest growth, at a 0.9 per cent increase in the month to July, compared with a 0.5 per cent increase nationally.

Supermarket spending continues to be a standout, as consumers focus on non-discretionary items and cut back on department store items.

Colliers’ recent quarterly retail snapshot highlighted the strength of the neighbourhood retail sector – suburban centres anchored by major supermarkets – on the back of the strong supermarket spend.

The report also highlighted population growth as a key driver of retail spending, with WA leading the nation with a 3.3 per cent increase in its population in 2023.

It noted that investment in retail centres was constrained for most of last year, due to rising interest rates, but that had flipped in recent months amid increasing confidence.

A total of $971 million has been invested in WA retail centres to this point in 2024, compared with $1.03 billion for the entirety of last year.

These mainly comprise of neighbourhood centres, with Dianella Plaza, Karratha shopping centre and Halls Head Central being among the assets to change hands.

WA fund Greenpool Capital, which bought Dianella Plaza for Vicinity Centres for $76 million in late 2023, is reportedly under contract to buy Victoria Park Woolworths from Vicinity for about $35 million.

Perth family office Hawaiian, which recently bought a 50 per cent stake in Claremont Quarter to increase its ownership to 100 per cent, invests strongly in neighbourhood assets.

Hawaiian chief operating officer Richard Kilbane told Business News the company would continue its focus on neighbourhood retail, with 10 of the centres under its belt.

“We continue to believe in it,” he said.

“We like neighbourhood retail because it’s more tangible and it’s got good impact.

“We want to have an impact in the community. We don’t want to be a faceless owner.”

Besides Claremont, Hawaiian has not bought or sold any assets in the past 12 months, focused instead on upgrading its existing stock.

It has spent about $15 million on its Newpark Centre in Girrawheen, $8 million on a laneway refurbishment at Claremont Quarter, and about $1 million on its Park Centre asset in Victoria Park.

In addition, its tenants have invested in upgrades of their assets, particularly Coles, which has upgraded its Forrestfield centre and is set to turn its Hillarys asset into a Coles Local (a boutique version of the supermarket).

“We’re doing all these other works [and] if you added them all up [it’s] the equivalent of buying a shopping centre, because you’re paying for that from your cash flow,” Mr Kilbane said.

“As opposed to buying something for sixty million dollars, [we] can take debt on forty per cent of that.

“That’s twenty or twenty-five million dollars [we] would have had to come up with. We’re choosing, at this point in time, to reinvest it into the centres.” 

When it comes to adding a residential component to its assets, Hawaiian hasn’t ruled it out but neither is the company actively pursuing it.

“We’ve always had a strategy to have shopping centres because they’re large landholdings close to the city, so it’s always been in our mind that that’s a good idea,” Mr Kilbane said.

“In this market it’s pretty challenging, but I think in time it’s something that we would be considering.”

Mr Kilbane highlighted the Town of Victoria Park’s town planning scheme, which provides a scenario for up to 18 storeys on the Park Centre site.

“When councils kick off a process, that’s when we would engage with it, but ... our core business is our customers, our retailers and our shoppers,” he said.

“At some stage in the future we might think about it [residential], but it’s not something we’re considering now.”

Bruce McCully says there’s significant value in large-format retail. Photo: Michael O’Brien

Centuria Capital Group, which owns $1.4 billion of retail assets across WA, has a similar approach.

The institutional giant bought Halls Head Central for $70 million from Vicinity Centres in May, in its only major retail transaction in WA in the past 12 months.

Centuria head of retail Bruce McCully said the sub-regional centre offered the opportunity for other uses into the future.

“When we bought Halls, it had 1.2 hectares of vacant land sitting around it, so that was obviously a strategy for us,” he said.

“Whether we put residential, other retail uses, medical …. [or] …. just other things onto that land.

“That’s why we quite like the large-format space and sort of sub-regional and neighbourhood space, because they do have big car parks and big bits of vacant land around them.”

Large-format retail is the only sector that didn’t drop in value in Centuria Capital Group’s portfolio, according to its latest annual results.

Valuations in that sector increased by 1.09 per cent in the 12 months to June 30 and 1.93 per cent in the first half of the year.

The company owns $622 million of large-format retail in WA and $1.59 billion nationally.

Centuria has $778 million worth of ‘daily needs’ retail in WA (supermarkets), with the sector posting a 2.99 per cent valuation decline nationally in the 12 months to June 30.

Mr McCully said Centuria had held back from buying neighbourhood centres recently as the value equation didn’t stack up for him.

“Large-format and sub-regional are quite attractive to buy because you can get decent returns in them, whereas neighbourhood shopping centres for a buyer like us, for a syndicator, it’s quite difficult to buy an asset like that because you find it difficult to pay the returns to the investors,” he said.

“We really like the neighbourhood sector, but … it’s priced so strongly [at the moment].”

Floreat

For Perth-based property fund APIL, developing a residential precinct is key to progressing with upgrades of its Floreat Forum asset.

The company bought the centre in 2009 from GPT Group, and no significant upgrades have been undertaken since.

APIL’s plan to construct seven apartment towers up to 20 storeys has drawn the ire of local residents who argue that the proposal is not in line with the character of the area.

However, the Town of Cambridge identified Floreat Forum as an area for residential density in its local planning strategy.

APIL is in the process of consulting with the community, with the proposal out for public comment.

Floreat Forum now (top). Photo: Michael O’Brien. APIL’s vision for Floreat Forum (bottom). Image: MJA Studio

Place Fabric creative principal Graham Taylor, the architect behind the retail component of the project, said a redevelopment of the centre would cost up to $100 million.

“You can’t pay for the [upgrade of the] retail component with a declining centre,” he said.

“It’s going to die unless we do something with it.”

APIL managing director Peter Hughes stressed the importance of the residential precinct to funding the retail upgrades.

“To achieve this vision, and to see a much-needed refurbishment to Perth’s first major suburban shopping centre which opened back in 1965, a precinct structure plan which is economically viable has been prepared by APIL as the owners and operators of the Floreat Forum,” Mr Hughes said.

Scentre Group is planning a significant overhaul of Westfield Booragoon but has not given on timeline on that project.