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[+] The Cha-Ching Moments Defining the Retail Comeback


It’s the cha-ching moment for Australia’s shopping malls: the ringing-up of billions of dollars in acquisitions that seems finally to be putting an end to the overplayed requiem for bricks-and-mortar retail.

Loading up their shopping trolleys, heavyweight investors and institutional funds have embarked on a record splurge, bagging several trophy shopping malls across the nation.

“And there’s more to come,” CBRE head of retail capital markets Simon Rooney says. “I’ve got about another $1 billion to do between now and Christmas.”

Rooney cites a growing list of already sealed deals for top-end sub-regional and regional assets that have signalled not only a robust recovery in the sector after being laid low by the pandemic but also a major change in the retail investment psyche and a realisation of the potential upside of the country’s shopping malls in the e-commerce era.

Topping that list is what he calls the “Pac and Mac” deal—a massive $2.2-billion deal by a consortium including UniSuper, Cbus Property and AMP Capital Finance for a 50 per cent stake of the Macquarie Centre in Sydney’s north and 80 per cent of Pacific Fair on the Gold Coast.

It is the biggest direct retail property transaction in Australia’s history.

▲ Pacific Fair on the Gold Coast, part of the biggest retail transaction in Australia’s history.
▲ Pacific Fair on the Gold Coast, part of the biggest retail transaction in Australia’s history.


Another landmark transaction that has defined the turnaround has been Hong Kong-based property fund manager Link Asset Management’s $538.2 million buy-out of GIC’s half stakes in three prized inner-city Sydney retail assets—the Queen Victoria Building, The Galeries and The Strand Arcade.

“We’ve seen this big jump back into retail ... it’s a real turning point,” Rooney says.

“As we’ve been coming out the other side of the pandemic and the lockdowns, these assets have bottomed and they’ve kicked ... and they’ve just become a very compelling proposition not only for domestic but offshore investors.

“The institutional capital has come back into the market because it has really become a situation that is just too good to refuse.

“It’s all about returns and when investors look at office at 4 per cent and industrial and logistics at 3 per cent, then they see retail—heavily discounted from historical peak levels, with income that has been rebased and month-on-month foot traffic and sales turnover growth—at yields that are 6 per cent plus ... it’s just too compelling.”

Rooney also says confidence has come back into Australia’s shopping mall assets because of changes—including “a bit of recalibration and rationalisation”—that have occurred off the back of Covid.

“A lot of that uncertainty surrounding online shopping has now dissipated,” he says. “The majority of the disruption has happened and investors can come in with their eyes wide open and know what they’re getting into now.”

▲ Link Asset Management spent $538.2 million to acquire half stakes in three prized inner-city Sydney retail assets including The Strand Arcade.
▲ Link Asset Management spent $538.2 million to acquire half stakes in three prized inner-city Sydney retail assets including The Strand Arcade.


The other significant impetus for the unfolding resurgence in the retail investment market is the still largely untapped mixed-use value potential from the continuing evolution of shopping malls.

“That’s a big attraction and the very reason for some of these recent acquisitions,” Rooney says.

“Some of these centres are sitting on massive land-rich sites on transport hubs in densely populated areas and they offer huge mixed-use development opportunities—residential, build-to-rent, office, medical, you name it. They’ll become mini cities within cities.”

CBRE’s latest data shows that shopping mall sales currently account for almost 16 per cent of the total commercial property transactions in Australia, the highest proportion since June 2018.

In October, Vicinity Centres paid $358 million for a 50 per cent stake in Harbour Town shopping centre at Biggera Waters on the Gold Coast.

Perth-based Greenpool Capital in partnership with Qualitas also recently spent $132 million to take a half share in the nearby Runaway Bay Centre following Perron Group’s $128-million acquisition with Vicinity Centres of the other 50 per cent a month earlier.

Among the other acquisitions of major sub-regional assets that have added momentum to the retail sales rush, Roselands in Sydney’s south-west was snapped up by Hong Kong investment house JY Group in a $167-million deal above book value.

It also partnered with Haben Property Group to secure Wollongong Central from GPT Group for $402 million.

In Darwin, Brisbane-based fund manager Sentinel Property Group has pounced on Casuarina Square for about $420 million, in another divestment by GPT Group.

More recently, Dexus has doubled down on its investment in Westfield’s Warringah Mall at Brookvale in Sydney’s northern beaches with a circa $410-million investment, bringing its stake in the asset to 50 per cent.

▲ Westfield’s Warringah Mall at Brookvale in Sydney: Dexus has taken its stake to 50 per cent with a $410-million spend.
▲ Westfield’s Warringah Mall at Brookvale in Sydney: Dexus has taken its stake to 50 per cent with a $410-million spend.


“There is significant confidence in the sector ... it has rebounded strongly and I think we’re going to see a hell of a lot more of that going forward into next year,” Rooney says.

In the first three quarters of 2021, retail investment transaction volumes hit $5.7 billion, —surpassing the total activity for the entire 2020 calendar year by $1 billion.

The latest JLL retail market overview noted there had been a “significant improvement in liquidity”—particularly for assets over $300 million—from a range of capital sources including syndicates, offshore investors, superannuation funds and some REITS.

“If all the reported pending transactions conclude in 2021 ... retail investment volumes for the year would potentially reach $10.8 billion, a record high for Australia by a significant margin,” it said.

But according to Colliers head of retail investment services Lachlan MacGillivray, given the major retail assets currently in play and the momentum in the market, there is a real possibility of the level of transactions going higher.

“Based on what we’re across we’d be expecting it to be well north of $11 billion and possibly $12 billion for the year end,” he says.

“You’ve got a big weight of capital out there looking to get invested and, basically, since February every asset that has come to market has continued to outperform and it hasn’t slowed up.

“While the pre-Covid view was that everything was going to shift online and people were going to stop visiting shopping centres, people now—having had that choice taken away from them—have realised the importance of the physical shopping experience and, significantly, seen the resilience of these assets.”

▲ Retail assets transaction are on course for a record year in Australia, putting paid to predictions the days of in-person shopping were over.
▲ Retail assets transaction are on course for a record year in Australia, putting paid to predictions the days of in-person shopping were over.


MacGillivray says relative value, with the devaluation of major retail assets by anywhere between 5 per cent and 25 per cent through the pandemic, also was a key driver of the retail market’s revival.

“Industrial is incredibly expensive at the moment and very hard to secure on a scalable basis, and there’s still a fair bit of uncertainty on what office occupancy looks like going forward.

“Then you look at retail and it’s now probably a bit easier to see what the future runway for the sector looks like ... you’ve got these incredibly well-located pieces of urban infrastructure that offer the ability to add significant incremental value.”

Real Capital Analytics’ head of analytics Ben Martin-Henry says it could be quite a finish to a big year for the retail investment market with 35 per cent of transactions traditionally getting done in the fourth quarter.

“It has been an interesting ride for retail this year,” he says. “There has been a real ramp up of the size of the deals in the retail space ... and certainly it’s the one sector that has very much surprised a lot of people on the upside, particularly the sub-regional centres that have been out of favour for a number of years.”

But, he says, investors have been astutely taking their investment leads from pandemic-induced population shifts.

“Investors are definitely following those recent population trends, that huge migration from the capital cities to the regional areas and that’s where they’ve been picking up a lot of these assets.

“They will no doubt expect to see some uplift in coming years as we come out of Covid but for now there just seems to be a lot of chatter about revenge spending because people have been in lockdowns and haven’t been able to get away so they’ve got a bit more cash at hand this Christmas.”

One thing is for certain, says CBRE’s Simon Rooney: “Australians love to shop”.


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Article originally posted at: https://www.theurbandeveloper.com/articles/what-went-right-for-australian-retail-comeback