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Retail sales frenetic amidst sector upheaval

Property Markets / Outlook

Australia / Melbourne

Jul 10 2018

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Demand for retail property assets in Melbourne in 2018 has been ironically frenetic in the midst of one of the most turbulent periods for retailing in years with disappointing retail sales figures and online competition leading to the demise of some brands and the relocation and restructuring of others.
 
According to National Director Investments at CBRE, Mark Wizel, the Victorian Retail Investments team has sold eight properties with a value of nearly $270 million – the bulk of them in just two months - with campaigns currently underway likely to add an additional $200 million to that total.
 
``This is equal to the best start to the year the Victorian retail team has ever had, a situation which few would have dared to forecast given the headwinds facing the retail sector including low wages growth and significant rises in household costs – driving a generally conservative spending regime - and rising competition from online retailers.
 
``While online competition has not been a Y2K non-event, and the case is certainly not closed on any negative impact it may ultimately have, it’s fair to say it has led to some obvious positive spinoffs that have driven greater creativity in the management of some of our city’s most important retail assets.
 
``That includes some astute remixing of the retail offer with the recognition of the need to attract the public back into these centres. Indeed, one could quite easily argue that there has been some complacency in the sector that online retail competition has exposed and that may, ironically, underpin its survival,’’ Mr Wizel said.
 
He said Melbourne’s rapid population growth and forecasts of more to come was also a key factor behind the very strong sales results.  
 
Melbourne property baron, Colin De Lutis, who paid $61.65 million for Abacus Property Group’s The Village Bacchus Marsh Shopping Centre in April, said there remained opportunities at every stage of the market cycle.
 
``Let there be no doubt that some of the best investments ever made were those transacted during some of the toughest times in the market.
 
``Bacchus Marsh Village is a significant asset with exceptional growth potential in one of Australia’s fastest growing regional housing markets. It also offers substantial revenue upside through a tenancy remix which will reflect the market’s positive reaction to the potentially negative impact of online trading,’’ Mr De Lutis said.
A significant property player in Melbourne with interests in apartments, offices, hotels, carparks, and industrial property, as well as several shopping centres, Mr De Lutis has plans to add value to the centre via a remix of tenancies with a focus on food, entertainment and services.
 
Retail sales (CBRE) 2018
 
Property Price Yield Purchaser Sale
Mornington Village SC
$39.39 million 5.26% Local Chinese investor May
Mordialloc Plaza SC $41million 4.39% Local Industry player May
Bellarine Village SC $36.5 million 5.8% Local investor May
Woolworths Hadfield $11.75 million 3.57% Local investor   May
Maroondah Village SC $18.8 million 4.6% Melbourne based Asian May
The Village Bacchus Marsh SC $61.65 million 7% Colin De Lutis April
Highlands SC $43 million under 5.4% Mainland Chinese April
Coles Clayton $17.1 million 2.57% Local private investor March
Coles Clayton $17.1 million 2.57% Local private investor March
 
State Director Retail Investments Justin Dowers said the intense competition for the eight properties, and several others which had sold this year, had also seen yields tighten beyond that which had been hitherto thought viable.
 
``Eighteen months ago yields for this retail asset class were heading into 6 to 6.5 per cent territory and the question was, how low can they go? Well they have now firmly settled on an average marginally above 5 percent. 
 
``What is happening is that buyers have latterly recognised that these centres sit on some of the most valuable land in their respective regions, land which, down the track, may provide enormous development upside as local governments seek to maximize city centre land use.
 
``The underlying value that these properties offer, therefore, adds significantly to the current income stream and so a relatively passive investment also has the potential to become a long term development option,’’ Mr Dowers said.
 
He said investors were also attracted to the centres’ non-discretionary focused tenancy profiles and their ability to perform long-term, irrespective of challenging economic conditions.
 

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