Some positive signs are emerging in Australia’s retail sector, with investment activity rising, yields tightening and a spike in large format retail rents in Sydney and Melbourne according to CBRE’s Q2 Retail MarketView Report.
While lockdowns across the nation are expected to pose potential retail trading headwinds, opportunistic investors are taking a longer-term view and have added retail assets to their shopping lists.
CBRE’s MarketView shows that total value of transactions from Australia’s retail sector jumped 82 per cent to $2 billion between Q1 and Q2, 2021, with the increase even more pronounced at 187 per cent on a y-oy basis, given that Q2 2020 was heavily impacted by COVID restrictions.
The sub-regional sector was particularly active, with almost $1.3 billion in assets traded in Q2 this year – almost double what was transacted in the same period last year and 16% above Q2, 2019, with notable transactions including Mirrabooka Square in Western Australia for $195 million, CS Square in Victoria for $136.5 million and Hallett Cove Shopping Centre in South Australia for $71 million.
“We expect to see overall retail transaction volumes increase further in the second half of 2021, as foreign and domestic investors increasingly return to the market, attracted by high quality opportunities becoming available and the compelling returns, as investors continue to be priced out of alternative commercial property assets classes,” said CBRE head of retail investments Simon Rooney.
“The retail mixed use space has become, and will continue to be, a key and strategic investor focus, as major opportunities present themselves and investors look to deliver enhanced returns via progressive asset repositioning and by leveraging off exiting cashflow, with the inclusion of ancillary uses such as residential, medical centres and coworking spaces.”
In tandem with the spike in investment activity, CBRE’s MarketView report shows that yields compressed in every retail asset class (except regional centres). CBRE’s Head of Retail Research Kate Bailey said the strongest yield compression came from neighbourhood centres (-18bp q-o-q) and subregional centres (- 15bp q-o-q), with both sectors benefiting from strong supermarket sales.
Meanwhile, a solid housing market has been reflected in strong y-o-y rent growth in the Large Format Retail sector, particularly in Sydney (+23% y-o-y) and Melbourne (+5.5% y-o-y).
“We see improvement Australia-wide for Large Format Retail rents that can be attributed to the growing housing market and the uptake of the Home Builder grant scheme. While household goods sales growth has slowed in the first half of 2021 compared to the significant growth of 2020, spending has remained resilient overall in the LFR space,” said CBRE’s Australian head of large format retail Shane Cook.