The tide is turning for the bulky goods sector

The tide is turning for Australia's bulky goods centre sector, with both investor demand returning and yields likely to tighten in 2014.

For years bulky goods have been seen as higher risk than other retail property assets. But new research from Colliers International is showing that a recovery is underway in bulky good sales, in particular in the key household goods, hardware and garden supplies categories. The research further found that a "pick up" in the sector is emerging in retailer demand.

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"Investor interest in the prime end of the bulky goods sector is starting to see signs of an increase in the depth of demand, with a number of large transactions having occurred over the last 12 months," said the Colliers report titled Balancing the tenancy mix. “This reflects the expectation that market conditions will improve and the favourable terms (higher yields) at which assets in this sector can presently be acquired".

Year-to-date transaction volumes for bulky good centre assets of more than $10 million totalled $653.95 million, with 18 transactions recorded. Based on those numbers, volume is above the five year average of $576 million but well down on the total sales volume of $944 million achieved in 2012, it said.

Despite some of the positive numbers for the sector, one key measure which remains soft is yields. Average yields across the 18 transactions, Colliers noted, indicated a further softening of yields to 10.6%. That compares to the previous year's 9.3% and 8% in 2008.

However, Colliers said that values in the sector appear to have bottomed and that private investors had been "building up" their portfolios.

Rents were steady for bulky goods centres and vacancies tightened nationally.

The report concluded that while the bulky goods sector is considered higher risk than other retail investments, "this risk currently appears to be overpriced, and therefore there is scope for yields to tighten during 2014."

It also believes that with interest rates low and the anticipated increase in residential transactions, sales for retailers in the bulky goods sector was likely to improve over the next 12 months. "While this is positive, it is likely to take some time to flow through to rents," it said.

Colliers is forecasting rental growth to likely remain in line or slightly above CPI during 2014.

news@propertyobserver.com.au

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