Liquidity to increase in 2017 in buoyant retail investment market

The Australian retail investment market is expected to maintain its strong run in 2017 as retail property’s relative value proposition continues.

In 2017, investor demand is likely to remain buoyant while liquidity should increase as more stock is brought to market and the spread between bond and property yields contracts, according to the latest Australia Retail Investment Outlook Report released by Cushman & Wakefield.

Nick Potter, Head of Retail Investments Australia and New Zealand commented: “Australian retail property as a whole remains an attractive investment proposition given the relatively wide gap between the cost of debt and returns on offer.

While we expect this to support further yield compression, it will be more modest than seen over the past year.”

The report reveals that the Australian retail sector is being buffeted by cyclical and structural changes, which will provide opportunities for retailers and landlords alike.

Shorter term changes in the economy and financial markets are influencing spending and investment patterns, while longer term shifts in demographics and technology are changing the way the population live and shop.

Economic, employment and income growth are all forecast to remain positive, though sub-trend, and retail sales should remain in line with this with moving annual turnover (MAT) growth in 2017 of 3-4%.

Variations in retail expenditure between state and territories should narrow as state economic growth moves through different points in the cycle.

Investment transaction activity remained buoyant in 2016 at $7.2bn, with strong support of $1.6bn provided by CBD retail centre transactions.

While total volume declined 14% year-on-year, this was more a reflection of a lack of available stock for purchase.

Looking ahead, investor demand is expected to remain strong in 2017, though more stock is expected to be brought to market, increasing liquidity, which will support investment volumes.

Nick Potter noted: “We expect institutional owners to continue to dispose of non-core assets, such as sub-regional centres in non-metropolitan locations.

Active traders are also likely to offer repositioned assets for sale as they seek new opportunities.

Overall, this will provide opportunities for purchasers all along the risk curve. As a result, heightened liquidity is projected for 2017.”

Structurally, longer term changes are evident as the Australian lifestyle shifts away from large weekly food shopping, towards daily food purchases and increased consumption of prepared meals.

At the retailer level, this evolution has driven development of new “fast dining” options to meet a growing consumer need.

Landlords and developers have used these changes to increasingly pursue mixed use projects and secure “highest and best” site usage.

“With a significant drop in retail centre based floor space per capita, limited green field retail development opportunities and shift towards daily rather than weekly food shopping, mixed-use retail continues to emerge as a major category in Australia’s retail landscape" Nick Potter said.