Retail A-REITs grow despite economic environment
Slow retail sales growth over the past year has produced a difficult retail trading environment.
Retail sales growth remains positive overall at 2.6% per annum, although this is significantly below its long-term average of 6.2% per annum.
Department stores and household goods retailers are being particularly affected. Online sales now represent approximately 5.5% of total retail sales and are growing at around 20% per annum.
To date, this has not represented a substantial threat to high-quality shopping centres, and many retail A-REIT managers have adopted strategies to incorporate the effects of online retailing such as purchase collection centres and enhanced personal mobile device technology. The recent failure of the Click Frenzy online sale will have done little to enhance the reputation of the technology to the unconvinced.
Measures of annual turnover growth in the retail A-REITs have generally improved over the year to September 2012, however remain below long term averages at around 1% to 2%.
Fixed rental increases embedded in existing leases are reflected in average rental growth of around 2% to 3% across the retail A-REIT sector.
This contrasts with releasing and new leasing activity which shows reductions in rent of between 1.5% and 3%. Lease incentives, often in the form of contribution to fit out, range up to 20% for five-year terms for some shopping centres, particularly those with a high discretionary retail element or those which do not dominate their catchment areas.
While regional shopping centre vacancies have increased from 0.6% to 1.2% over the past two years, the average vacancy in the retail A-REITs is 0.5% demonstrating the value of active professional management.
The retail A-REITs have been active in capital management, portfolio development, acquisition and disposal in order to maintain and enhance the quality of their portfolios:
Retail A-REITs provide investors with an exposure to quality retail real estate portfolios and management expertise.
Mark Wist is senior asset consultant at Atchison Consultants.
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