Where are we in the cycle for neighbourhood shopping centres?
Despite a minor downswing at the start of the GFC, the shopping centre cycle has been on a steady rise ever since. They are in limited supply with existing owners reluctant to sell unless there are alternative projects in which they can invest in. So in cycle terms we have been in the 9 to 11 o’clock period for quite some time.
Who is in the market to buy and why?
There is a common misconception in the market that our shopping centres are all being sold off to foreign investors, however the opposite is happening. I would estimate that in excess of 90% of retail centres are being sold to local investors such as wealthy private individuals, syndicator groups, superannuation funds and smaller local institutional investors. They are all simply chasing high yields with security.
Compared to two years ago, how much have the yields tightened?
Yields have tightened approximately 0.5% pa over the past 2 years. We keep looking back at sales that transacted 12 months ago (which we believed at the time were very aggressive prices), and think in today’s terms they were a bargain. Despite many experts stating that the market has topped out, we are continually experiencing record low yields as new centres come onto the market.
What is happening in the regions?
With quality retail stock difficult to find, investors are comfortable with investing in regional and country located centres. In many instances a quality country shopping centre with a Coles or Woolworths supermarket may offer better security than its urban counterparts as it is less likely to have a competitor developing nearby. Mining towns are the exception where the demand continues to be low.
Where do you see the sector in five years?
It is a simple case of supply and demand. Very few new shopping centres are being developed and there is a huge volume of unsatisfied demand.
With a combination of a long term, low interest rate cycle, and considerably higher yields than those being achieved overseas, we are likely to continue to experience record sale prices for quite some time.