NSW & QLD front runners as Australian retail sales volumes reach 10 year high: Savills

2018 is shaping up to be a solid year for the Australian retail investment market if 2017 figures are anything to go by.

According to Savills Quarter Times report, national retail investment volumes reached a 10 year high at $9.17 billion in 2017, with almost half of the total value invested in the $200 million + segment, a trend which hasn’t been seen since 2007.

While overall volumes appeared to moderate during the first half of 2017, major investment volumes quickly recovered and the final quarter closed strongly. 

According to Katy Dean, Associate Director, Research & Consultancy, Savills Australia, although investment volumes in 2015 got close to $9 billion, Australian retail investment in 2017 ($5m+) outshines any level seen in the last decade. 

“Of the surveyed markets, NSW and QLD were the headliners, recording significant rises in investment volumes on a year-on-year basis. 

“Investment volumes in NSW accounted for 45 per cent of national volumes at $4.124billion, almost double the volumes seen in 2016. QLD accounted for almost 30 per cent of the total tally at $2.712billion, a 28 per cent rise on the volumes recorded in 2016. 

“VIC accounted for 20 per cent of national volumes at $1.466billion, however following a surge in 2015 and 2016, volumes were lower for the year ending 2017. 

“WA and SA account for around 9 per cent of the total and while volumes in SA dropped to $230million in 2017, down from $394million in 2016, WA volumes increased 5 per cent to $614million, up from $582million”.  

Ms Dean went on to say that November was the most active month of the year, setting the pace for December which saw a continuation of the high volume, mostly in NSW and QLD, making it the second most active months of 2017. 

“That surge through November and December, has provided a significant boost to the yearend volumes and created a brighter outlook as we start 2018” she continued. 

According to Steven Lerche, National Director of Retail Investments, Savills Australia, 2017 saw the retail property market fuelled by low interest rates, rapid population growth and large volumes of foreign capital. 

“Market conditions remained strong across all sectors but the biggest winners have been the non-discretionary neighbourhood centres and freestanding supermarkets - both of which, have been hotly contested.

Mr Lerche said most active investors are onshore REIT’s, Funds, syndicates and private. Offshore Chinese investment has been patchy but they have targeted well located (next to train stations) redevelopment opportunities allowing for integrated living, shopping and entertaining. 

“Large format retail has remained an active sector with yields falling sharply as investors have been keen to secure such assets” he said. 

From a national perspective, Ms Dean said regional, sub regional and neighbourhood transactions were the largest contributors to overall volume numbers, with deals in the regional sector ($2.508billion) mostly responsible for the record-breaking year. The last time regional sales volumes got close to this level was back in 2007 ($2.87billion). 

“On average the market turns over $1.02billion in regional assets annually, with sales in 2017 buoyed by five main transactions with stakes selling in Indooroopilly SC in QLD for $800million, Kawana Shoppingworld in QLD for $186million, Highpoint SC in Vic for $660million, Chatswood Chase in NSW for $562.3million and Rockingham SC in WA for $300million.

“Neighbourhood Centre transactions accounted for 20 per cent of total volumes, $1.840billion across the capital cities surveyed, well above the $1.38billion recorded in 2016.

“After recording $1.629billion, the large format sector was a major standout in regards to investment volumes, reaching its highest level in the past decade” she continued. 

Mr Lerche said despite a shift in retail spending, we expect investment sales volumes in 2018 to remain steady. 

“Yields will remain tight due to the continued historically low interest rates and the private sector is likely to continue to cash out at what they believe to be the top of the market.

“In 2018, we could see similar levels of supply however we do expect a thinner buyer pool. Sydney will remain the defensive location with population growth fueling investment demand.” 

Savills is a leading global real estate service provider offering the full spectrum of services from strategic advice to managing assets and projects and transacting deals. Katy Dean is Associate Director of Savills Research & Consultancy and Steven Lerche is National Director of Savills Retail Investments. To learn more about Savills, visit savills.com.au.