Queensland's retail sector ramps up under increased investor appetite

An increased investor appetite for retail property by private and institutional buyers in Queensland is ramping up transaction levels across the state’s retail sector. This includes a renewed desire for bulky goods centres.  

The increase in transaction activity - both in total value and in the average size of transactions – is highlighted in a research report by estate agent Savills.  

Insight Retail Queensland shows a total of $2.2 billion worth of retail property sales above $5 million in Queensland in the 12 months to September - up from $1.46 billion in the previous year and well up on the five-year average of $1.13 billion.  

It shows that investor demand for the state’s retail assets is coming from all buyer categories: from private investors and syndicates up to institutional investors who accounted for $1.14 billion of the total $2.2 billion transacted during the year to September.  

The report shows that investor demand is growing across the whole spectrum of retail property: from regional, sub-regional, and neighbourhood centres to renewed interest for bulky goods centres.  

The average size of retail transactions has increased significantly: from $48 million in the previous year to $73 million in the year to September this year, reflecting the increased appetite for sub-regional and regional scale assets from institutional buyers.  

By number of sales, properties in the $10 million-$50 million price range proved the most popular, accounting for around 52% of the total number of properties transacted.  

“Investors are sensing that the outlook for retail property with a five-year horizon is better than commercial offices, given that the national office vacancy has drifted above 10% with the major office markets all likely to go higher as new developments enter,’’ Savills Queensland retail sales director Peter Tyson said.  

“Accordingly, many of the institutional investors have signalled their desire to acquire more quality retail assets, suggesting yields are as generous as they are going to get.  

“We have already witnessed this year improved demand and increased competition with compression of yields for larger and prime assets. We expect this will continue as purchase opportunities remain tight, debt remains low and the weight of capital seeks to find a home.”  

Tyson said Queensland’s retail trade had grown to $54 billion annually and was now 20% of the national annual trade. He said sales in the household category had recovered from negative growth to be up 5% in the past 12 months.  

“One of the key criteria that investors are looking for is a balanced tenancy mix. That is, the right number of specialties-to-anchor ratio and the right variety among the specialty tenants,” he said.  

“Non-discretionary retail tends to hold up the best in economic downturns and, accordingly, neighbourhood centres have been consistently popular, although they do fall in the right price range also for a greater percentage of private investors and syndicates.  

“In the past 12 months, an appetite for bulky goods centres has re-emerged, particularly on the back of some attractive yields. Overall, the outlook for bulky goods has certainly improved, which is reflected in the volume of sales in this category, and we expect this to continue.”  

There are plenty of indicators to support an optimistic outlook for retail across the board, said Savills Queensland research director Paul Day. ‘’Interest rates are at record lows, unemployment is stabilising and likely to be contained below 6.5%, and household savings are at a 20-year high.  

“Improved margins in household savings and population growth will drive total spending. Already we are seeing Queensland outperforming the other states with 3.2% trend growth in retail turnover - double the Australian average for the 12 months to July 2013,” he said.  

“Population growth is again on the rise and the median house price differential between Brisbane and the southern capitals has again widened to more than $100,000. This will promote higher levels of interstate migration.  

“We see a jump in retail trade turnover coming which will enliven the sector and the economy in general. With the low cost of debt and improving prospects, appetite for investment retail property is likely to escalate with a subsequent tightening in yields for prime assets.  

“Judging by the demand this year for retail property - from the smallest convenience centre through to major centres - it appears that investors share the same sentiment for the sector.”