Shopping centres a high priority on funds’ Perth acquisition lists

SUPERANNUATION funds continue to power retail sales and it is not just the star performers that are attracting attention.

Institutional investors, particularly the superannuation funds, are keenly chasing shopping centres for their portfolios and even the smaller developments are being picked up with a view to redevelopment.

CB Richard Ellis property analyst Andrew Woodley-Page said the performance of retail property and the return on the investment underpinned the strength of the market.

“It’s the best performing property asset in terms of capital return and income return,” he said.

“The demand in the past 12 months has been for neighbourhood and sub-regional centres because they offered high yields.”

He said investors had identified a yield gap provided by the sub regional centres.

The major property funds, including MCS Property and Centro Properties, have invested heavily in sub-regional centres in WA.

It is a tight market and investors with shopping centres in their portfolio are holding onto them, forcing institutions to look beyond the shining stars.

“Basically you’ll find a lot of institutions have the money just waiting for the right investment,” Mr Woodley-Page said.

Jones Lang LaSalle associate director John Williams said the quest for a diverse property portfolio played a role in the demand for shopping centres.

“All the funds want to have a spread of different type of property. Even the smaller centres that are under-performing are being bought,” he said.

“Funds will buy these centres because they feel they can reposition them.

“It may take a change in the nature of the tenancy mix or a reconfiguration.

“The funds aren’t just looking for investments they are looking for redevelopment opportunities as well.”

Mr Williams said buyers would scour the market for property that had not been fully realised.

“Most buyers are looking at something that they can add value to. If it’s distressed that’s even better,” he said.

The retail market in Australia has not always been the star performer.

Colliers International manager research David Cresp said the sector was performing poorly up until late last year.

“What’s happened is there’s been a polarisation in the retail sector,” he said.

“Retail is either very big, regional or otherwise, it’s convenience based.

“The ones in the middle are getting quite squeezed and as the regionals get bigger there’s a situation where the sub-regionals are trying to compete with the regionals.”

Regional centres’ catchment areas now cover all of the Perth metropolitan area.

Mr Cresp said smaller centres were becoming more community focused to survive.

The mix of retailers in the smaller shopping centres had also changed as supermarkets offered a wider range of products, eroding the smaller specialty stores that traditionally clustered around the major super market.

There also was a critical size for shopping centres in relation to the population of Perth.

“The major regional centres continue to do well although whether some are now starting to push the size for the Perth market is questionable,” Mr Cresp said.

Regionals were also redefining the shopping centre as a major entertainment precinct as well.

Mr Cresp said the major investors were holding onto shopping centre assets and yields had come down significantly over the past year.

“The institutions have gone from only focusing on regionals to subregionals right down to the supermarket-based centres now,” he said.

““Most people still see the Australian economy as quite strong and the growth of a lot of businesses in Perth has been quite good.”

The strength of consumer spending is underpinning the market and low interest rates play an important role in the retail market.

FPD Savills manager of research Chris Freeman said low interest rates had stimulated sales.

“Basically the strength is based on the predictions of retail rent growth,” he said.

“A lot of the time retail rental agreements are not done as a standard lease, they’re done as a percentage of turnover.”

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