Retail property deals down 22% to $6.3b in 2019

Retail property deals down 22% to $6.3b in 2019

7 February 2020

Investment volumes in the retail property sector hit a seven-year low in 2019 with total transactions falling 22 per cent to $6.3 billion, as investors became increasingly cautious, according to a recent Australian Shopping Centre report by JLL.

2019 followed six years of consistently high volume, between $7.0 billion and $9.0 billion per annum. However, 71% of the activity (by value) for 2019 was in the second half of the year.

Investment volumes were just $1.8 billion in the first half of 2019, down 44% on the previous period, which was the slowest first half since 2009.

While Australia has been resilient to the global theme of weakening investor sentiment towards retail and the re-allocation of capital into other sectors, it has not been immune.

Investors became increasingly cautious towards retail pricing in Australia and the two major institutional categories, REITs and Unlisted Funds, turned from net buyers to net sellers in 2019.

As a result, the buyer pool was thin for major assets above $200 million throughout the year. While buyers are cautious towards pricing, capital sources continue to selectively seek exposure to major retail assets, reaffirmed by the major transactions of Westfield Burwood (50%), Westfield Marion (50%) and Garden City Booragoon (50%).

“While there are limited signs of distress among major shopping centre owners, some groups are motivated to reduce their weighting/exposure to retail which will drive a steady supply of investment product,” said Andrew Quillfeldt, senior director of retail research in Australia.

“Fundamentals for shopping centres continue to evolve and buyers continue to price-in conservative assumptions. Nevertheless, recent major transactions show there is still capital available for large retail assets.”

Two of the biggest mall deals last year – the sale of stakes in Westfield Marion for $670 million and Garden City Booragoon for $570 million – reflected “some softening in market pricing”, according to a JLL analysis.

“The retail investment landscape has changed. Owners with large existing retail portfolios are revising their strategies to adapt to the longer term operational changes as well as the more recent changes in liquidity and asset pricing in 2019.

“New capital sources are emerging to absorb some of the institutionally owned assets, driven by the opportunistic timing, the attractive yields relative to core real estate in other asset classes and the longer term potential for re-development.

“A fragmentation of ownership will continue to occur in the retail sector as major owners become more selective towards the assets they retain in their portfolios,” said Jacob Swan & Sam Hatcher Joint-heads of Retail Investments Australia.