REITs target luxury tenants
INTERNATIONAL retailers and new leases will underpin real estate investment trusts as they head into the Christmas/New Year business lull.
INTERNATIONAL retailers and new leases will underpin real estate investment trusts as they head into the Christmas/New Year business lull.In quarterly reports from GPT, Commonwealth Property Office Fund (CPA), CFS Retail Trust and Mirvac, among others, the theme has been one of steady leasing deals to keep income coming in.The focus on high-end international fashion labels has led to a rise in development costs for the CFS Retail Trust's Emporium project in Melbourne.However, the forecast higher sales revenue generated when the property opens by December next year will offset the initial higher charges, the trust's September quarter update says.The fund manager for CFS Retail, Michael Gorman, said the project's cost was expected to increase marginally from $560 million (CFS's share) to $575 million, and the target yield was now forecast to be more than 5 per cent instead of above 6 per cent.Mr Gorman said the trust's comparable shopping centre portfolio increased sales by 3.5 per cent over the period, while specialty store sales rose 4.4 per cent."The joint owners [CFS and the Government of Singapore Investment Corporation (GIC)] of the Emporium have decided to take advantage of the strong demand for luxury and international flagship stores and to increase the exposure to these retailers considerably," Mr Gorman said."The amount of floor area devoted to luxury tenants will double from the original [plans], and international flagships will increase from two to four stores."It is expected to generate higher sales turnover, and an even higher quality of income, given the increased number of international brands on longer-term leases".Brokers at Goldman Sachs said they had maintained their view that "risks continue to prevail around the large Emporium project, and until the outcomes can be proven we see a likelihood that investors will increasingly price some discount until the development completes in a little over 12 months".For office leasing, sentiment is getting stronger along the eastern seaboard.The fund manager for CPA, Charles Moore, said the new lease by the law firm Ashurst for 44 per cent of the proposed 5 Martin Place project would help offset a drop in valuations at 10 Shelley Street following the move to Barangaroo by KPMG in 2016.
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