Deals to spark centre surge

'This new supply of stores will require an additional $5.5 billion in estimated consumer spending to support it.' Simon Wheatley, Goldman Sachs

Westfield's reported plans to divest itself of seven malls in the US, and the company's $397 million sale of a half-share in Erina Fair on the NSW central coast, have sparked renewed interest in the retail property sector.

Although the report is unconfirmed, The Wall Street Journal says Westfield is in negotiations with American investment group Starwood to sell its stake in seven shopping centres and use the cash to fund redevelopments.

According to the report, the discussions come as retail property continues to rebound from the economic downturn while fending off competition from online shopping.

Westfield sold majority interests in seven centres in the US to Starwood in 2012, and a Westfield co-chief executive, Peter Lowy, has gone on the record saying asset sales, where appropriate, would be part of the group's future strategy.

There were suggestions Westfield could look to sell down its stakes in Australian and New Zealand assets to the minimum of 25 per cent required to retain management.

While some analysts say it is less likely, the cash would be useful to the retail behemoth's $1 billion-a-year development program.

Elsewhere, the purchase of the half-share in Erina Fair by the National Pension Service of Korea has unlocked cash for GPT to reinvest in its retail development pipeline.

Further fuelling activity in the sector was Stockland's $400 million capital raising on Tuesday, aimed at repaying some of the company's debt and for retail property development.

Goldman Sachs head of real estate research Simon Wheatley said the retail real estate investment trusts (REITs) had provided a glimpse in recent months of their near-term and medium-term plans for development in the sector.

If all were completed, it could require consumers to spend as much as $5.5 billion a year to help pay for the new centres.

These expansion numbers represented a 7.3 per cent increase in the number of specialty stores in Australian shopping centres, Mr Wheatley said. And while the plans would add to the popularity of centres among customers - people love shopping centres but more for food and entertainment - they could create an environment of oversupply.

"We believe the plans will result in over 1 million square metres of new retail space being supplied across 59 expansion projects, including the provision of 3558 new specialty stores," he said. "With some retailers indicating they may reduce store-count footprints, we are asking whether there will be sufficient demand to fill these new stores.

"This new supply of stores will require an additional $5.5 billion in estimated consumer spending to support it, on our analysis."

Mr Wheatley said this would need to come from broad spending growth, from population growth and inflation, market-share shifts, and/or increased spending by consumers in the trading area of the new developments.

"This planned total expansion in gross lettable area [GLA] would increase the total REIT-controlled shopping centre GLA in Australia by 11.7 per cent," he said.

"It would represent a 6.4 per cent increase in total shopping centre GLA in Australia. If spread over five years, this would result in about a 1 per cent per annum increase in total retail space or a 2 per cent per annum average increase in shopping centre floor space controlled by REITs."

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