Shopping centre tenancy sentiment drops: Jones Lang LaSalle

Sentiment among Australian shopping centre managers has weakened over the last quarter as recent rate cuts failed to improve the sector, according to a survey by Jones Lang LaSalle.

As of August, 53% of centre managers are expecting at least some sales growth over the next 12 months, down from 57% in May.

The drop in sentiment comes as interest rate cuts in May and June did little to improve tenant enquiry levels and consumer behaviour, the report noted.

Overall neighbourhood centres have been doing better than sub-regional centres.

Tenant enquiry has weakened over the period with just 12% of respondents reporting an improvement in enquiry levels over the June quarter.

The vacancy rate in sub-regional centres rose from 1.4% in March to 1.9% in June 2012. The report says while the rate is relatively low, the sub-regional centre vacancy rate has trended upwards the last three quarters.

Vacancy rates in neighbourhood centres dropped from 5.1% in March to 4.2% in June. The report says part of the reason for the reduced rate has been the recent letting up of vacant spaces in centres opened over the last 12 months.

The report find average specialty rents have experienced “solid” growth in the past 12 months, particularly in neighbourhood centres.

In the year to June 2012, average rental growth for the portfolio of neighbourhood centres was 4.7%.

Sub-regional centre growth has been weaker, with an average of 2.3% over the 12 month period.

In line with recent reports, the Jones Lang LaSalle report find centre managers have been using a range of incentives to retain and attract tenants, including both rent free periods and fit-out contributions.

Around 63% of respondents expected either no growth, or growth of less than 3% over the next 12 months.

The report finds tenants have been experiencing difficulties in obtaining bank finance as banks are cautious of lending to new retailers.

There have been mounting concern over the increased number of tenants on holdover leases, which is impacting on the security of income in shopping centres according to the report.

Tenancy mix was again highlighted as key to driving growth in a challenging environment.  A broader range of services is being targeted to replace struggling retail categories.