Emporium Melbourne likely to open with 85% occupancy rate in 2013: Goldman Sachs

Goldman Sachs has downgraded its leasing expectations for Colonial First State’s Emporium Melbourne retail complex, now a year away from completion on Lonsdale Street in the Melbourne CBD.

Goldman Sachs Australia senior REIT analyst Simon Wheatley expects the retail development to be 85% leased on completion, having previously forecast it to be fully leased.

The leasing downgrade follows Goldman Sachs taking a more conservative view on the project.

“While the Emporium project is in a core CBD location, the vertical retailing format and the limited reported pre-commitment at last update elevate the risk in the current difficult retail environment,” says Wheatley.

“As such we prefer to take a more conservative approach – we previously assumed the property being fully leased and thereby reaching target yield on cost on completion just over a year away, pre-Christmas 2013.

“We now take the view this will be 85% occupancy increasing quickly to 95% thereafter.

Wheatley says if the Emporium project can be successfully completed in line with targets this will be a positive catalyst.

“Until the outcome is proven, however, it is likely investors will increasingly show wariness around the development completion date,” he says.

The $1.12 billion project is being developed by the Colonial First State (CFS) Retail Property Trust and will feature 46,000 square metres of retail space between Lonsdale Street and Little Bourke Street, with 240 shops replacing the old Myer Lonsdale Street store.

The complex will also link with the Myer Melbourne department store and to David Jones via pedestrian bridges and tunnels.

Retailers who have pre-committed to space in the complex include UK fashion retailer Topshop, which will occupy 2,600 square metres over three levels and another “new brand to Australia” that will take 3,000 square metres over four floors.  Fashion shops Salvatore Ferragamo, Sass & Bide, Michael Kors, Scanlon & Theodore and Zimmerman have all been confirmed as tenants.

“Our estimates still factor expectation of a 6.65% yield on Emporium to deliver the target 6.0% yield on the whole project,” says Wheatley.

Emporium Melbourne is being built by Grocon and was at the heart of the recent dispute between Grocon and CFMEU.