Retail outperformed office and industrial over past decade or two: Stockland

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Stockland has lifted some of the current gloom surrounding retail by highlighting that the asset class has proven to be a better investment than both industrial and offices over the last two decades.

Retail property has delivered total returns of 11.9% over the last 10 years while offices have managed 9.4% and industrial 10% over the past 10 years.

The gap in total returns between retail and offices is even wider over a 20-year period, with retail property delivering investors 11.4% growth and offices delivering 7.1%.

Equally noteworthy for commercial investors, retail property returns have been far less volatile than office and industrial property over both the past 10 years and the past 20 years.

Managing director Matthew Quinn told shareholders at the Stockland AGM in Sydney that office and industrial ownership and management “has little synergy” with its other business lines, and did not add to the competitive advantages it had gained in its dealings with government and its broader customer base

The developer will continue to sell office and industrial assets to fund the growth of retail, residential communities and retirement developments and has raised its target of industrial and office sales from an initial range of between $400 million and $500 million to $600 million for the 2012 financial year.

“We are constantly looking for ways to improve our return on funds employed, and selling office and industrial assets is presently a much more cost-effective source of capital than traditional debt or equity, which are likely to remain scarce and expensive for some time to come,” Quinn said.

For the three months to September, Stockland’s portfolio of shopping centres delivered a 3.4% increase on moving annual turnover in the September quarter compared with the previous year.

Quinn called this return a “creditable result, given the current difficult retail environment” reflecting the retail mix in Stockland centres, “which focuses on day-to-day value and convenience, as well as the location of many centres in strongly performing regional locations”.

The developer has three major retail projects underway, including: a $275 million redevelopment of its Merrylands shopping centre in Sydney’s west including the addition of a fresh food precinct and an 800-seat food court; an expansion and redevelopment of its Townsville shopping centre; and a $330 million redevelopment of its Shellharbour shopping centre on the NSW South Coast.

“These projects are all going well, and we expect returns to be in line with or ahead of our feasibilities. We have several other key projects set to commence in the next year or two and we are putting our efforts into achieving development approvals, locking down our construction costs and signing agreements for lease with the major retailers,” Quinn told shareholders.

Stockland has also secured development approvals for the redevelopment of its Green Hills and Wetherill Park shopping centres, “both very highly productive retail assets that are ripe for expansion”.

“While these approvals are a big step forward, we are mindful that many retailers are cautious in their expansion plans and, coupled with the volatility in global financial markets, we don’t plan to start these projects unless we are confident we can achieve returns above our cost of capital and comfortably fund them through to completion,” he said.

“We are also mindful of the potential changes to the retail environment from e-commerce, and we are putting a lot of effort into researching these trends to ensure our centres remain resilient and our development plans appropriate.”