Property investors snap up retail assets

Spending on retail assets in Victoria has almost doubled over a year as property investors shrug off concerns about consumer confidence and tough trading conditions, a new report says.

Spending on retail assets in Victoria has almost doubled over a year as property investors shrug off concerns about consumer confidence and tough trading conditions, a new report says.

Retail investment was at record levels in the 2012-13 financial year and demand for assets is likely to continue at least for the remainder of this year, Colliers International research says.

At least 142 major retail transactions took place with a total value of $7.627 billion in 2012-13, Colliers said. The total value of deals during the period was 80 per cent above the $4.244 billion recorded the previous year, with the volume also rising strongly by 71 per cent.

Interest in retail property is being driven by significant capital from both domestic and international investors who are attracted by Australia's high employment, record low interest rates, the market's transparency and high-quality assets.

The record levels of activity were also apparent in regional and subregional shopping centres, the Australian Retail Investment Review said.

Neighbourhood centres made up more than 70 per cent of all shopping centre transactions in Victoria, with yields sharpening up to 40 basis points compared with last year, Colliers investment services executive Tom Noonan said. "We are noticing a substantial weight of money directed towards non-discretionary-focused retail investment properties," Mr Noonan said.

Ten properties were snapped up in two large portfolio transactions with ISPT taking a 75 per cent interest in four Coles assets and SCA Property purchasing six centres from Lascorp Development Group, he said. Recent rate cuts were making the spread between yields and debt more attractive.

Unfortunately for discretionary retailers, consumers continued the trend last month of spending more on goods and services from overseas rather than in Australian bricks-and-mortar stores, the latest Commonwealth Bank business sales index shows.

Overall annual growth was still solid in July with the majority of states and territories posting positive gains, but the strongest sectors for spending were entertainment and mail order, the index showed.

The challenging retail conditions have resulted in a power shift from landlord to tenant.

"Retailers are increasingly comfortable with walking away from a store should the property owner be unwilling to negotiate on rents. However, landlords are also becoming more realistic with leasing expectations," the report said. Face rents were largely being maintained and average rental growth for sitting tenants was positive as a result of contractual increases.

While regional shopping centres dominated activity by value (more than $4 billion), neighbourhood centres dominated by volume with 60 sales worth $1.287 billion.

Mr Noonan said institutional investors, superannuation funds and offshore investors were likely to be most active over the remainder of 2013. "We have seen the trend of capital partnering emerge over the past year and it will continue ... as more groups look to recycle capital and for backing to fund their retail development pipelines," he said.

sjohanson@fairfaxmedia.com.au

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