Private investing in retail peaks as institutions ready to shop for assets

The bargain era is almost over for shopping centres as the big money returns.

Private investors and syndicates have emerged as the dominant players in the retail sector in Australia with their buying of $12.5bn of centres, driving them to their highest share of transactions since the Global Financial Crisis, according to analysis by JLL.

But JLL said that institutional investors, who moved away from retail even before the pandemic, are now starting to reweight back into the sector; with big-ticket deals by Scentre Group and Vicinity Centres showing the way.

The firm said that retail investment fundamentals had also reached a new equilibrium and had rebased after dipping during the pandemic. Even though higher interest rates have hit values, as capitalisation rates have expanded, they are stabilising.

JLL head of capital markets research, Australia, Andrew Quillfeldt said there were several indicators pointing to a new equilibrium for ­retail, despite the liquidity headwinds that remain.

“Retail has now reset in terms of the investment fundamentals. We can see that clearly in key investment metrics, which are all supportive of a strong return outlook for the sector,” Mr Quillfeldt said.

The firm expects strong population growth, along with the current under-supply of retail floorspace, to be a major driver of sales productivity and rental growth over the next five years.

JLL head of retail investments Sam Hatcher said there was a “growing recognition of value in retail which is encouraging investors back to the sector”.

The firm’s analysis shows a split between retail turnover, which has increased by more than 30 per cent, while asset values have fallen by 30 per cent, creating a “deep value gap”.

“With a looming supply shortage forecast, particularly for regional and subregional shopping centre assets, this feeds into the investment case,” Mr Hatcher said. “Our analysis also shows assets are trading at a material discount to replacement cost at around 40 per cent, which provides a long runway for rental growth.”

Retail has also been a bright spot amid a quiet commercial property market.

JLL senior director, retail investments, Nick Willis said retail transactions were increasing globally, with the sector, along with hotels, the only areas to see a lift in transaction activity in the last half.