International brands fuel retail redevelopments

Pitt St Mall Lighting LaunchStrong demand from foreign retailers is driving the creation of new CBD and regional centre supply, with extension and refurbishment projects comprising the bulk of the future supply pipeline, a new CBRE report has revealed.

Sustained, relatively strong retail growth in the Australian market since 2013 is driving increased demand from foreign brands and further retail rent growth, according to CBRE’s new retail Marketview report.

Stephen McNabb, head of research, CBRE, said overall the national retail environment in 2015 was healthier than what was experienced in 2011-2012, when growth was more in line with inflation.

To accommodate the influx of offshore retailers, who continue to seek prime CBD and regional centre spaces, increasing redevelopment projects are taking place across Australia.

Alistair Palmer, national director, CBRE Retail Services, said the extension and refurbishment of regional centres had seen many foreign retailers take up space – lifting the image profile of these centres and leading to forecast rent increases in the medium term.

“There is approximately $8 billion worth of redevelopment and extension work likely to be undertaken by the listed REITS in the next five years, including major regional centres such as Westfield Chatswood, Eastlands VIC, Westfield Knox VIC, Westfield Warringah Mall NSW, and Chastwood Chase NSW.”

“The big game changers are likely to be Pacific Fair on the Gold Coast, Chadstone VIC and Castle Hill NSW,” Palmer said.

Pacific Fair is seeking to increase its floor area from 100,000sqm to 150,000sqm, in order to accommodate new fast fashion market entrants and a high end luxury precinct. The extension works are expected to be completed in Q2 2016, with AMP seeking to take the turnover of the centre from around $600 million to $1 billion per annum.

One of Australia’s leading shopping centres, Chadstone is also increasing is size from 175,000sqm to over 200,000sqm, to accommodate the fast fashion sector, extend its already strong luxury precinct and establish a dedicated casual dining area. Turnover from this extension is expected to increase from $1.4 billion to over $1.8 billion per annum.

Sydney will also benefit from redevelopment projects, with Castle Towers shopping centre in Castle Hill set to undergo a $1 billion project to add a further 80,000sqm – which will make it Australia’s second largest shopping centre upon completion.

Landlords are moving into a development phase after a decade of limited development, fuelled by the higher returns that can be achieved through redevelopment rather than acquiring additional centres.

“Returns on development projects are likely to be approximately nine per cent, rather than five per cent for purchasing existing centres,” said Palmer.

Some owners are additionally removing underperforming department and discount stores and replacing them with other retailers, including offshore brands, in an effort to strengthen centre appeal and relevance to consumers.

“By positioning centres to appeal to the changing buyer demographic, owners can often achieve a higher return out of new retailers who take less space than department and discount stores and have far higher turnover rates per sqm,” Palmer said.

Tim Starling, head of retailer tenant representation, CBRE, commented that Australian retailers have typically occupied smaller footplates than many of the international retailers that are now entering the market.

“Previously 2,000sqm floor plates were not accessible and so Australian landlords have had to re-think their ability to provide this space, which in turn has created the ‘space race’ amongst landlords.”

“General retail footprints are growing across the board, from fast fashion through to the luxury sector. This can attributed to strong sales results and the desire for retailers to showcase a wider product range,” Starling said.

The prevalence of foreign brands and relatively strong growth in retail sales over the past 18 months has also been translated into higher rents in Q215.

“Whilst further rent growth is expected in H215, we believe retailers are resisting large rental increases amid profit margin pressures as retail price inflation is still low,” McNabb said.

“Rents are forecast to grow by 1.5 per cent over 2015, 1.8 per cent over 2016 and 2.2 per cent over 2017.”

Comments

1 comment

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    Don Gilbert posted on May 11, 2019

    This is Old Old news. But it popped up ............. How the times have changed? In just FOUR years, my partner informs me from the Wall Street Journal, that Big Brand shops are closing down on 5th Avenue Manhattan sighting change in the retail business model! The large capital investment in retail floor space, the large mega centre investments and larger retail footplates; has the cost been justified? Our software will present to the parties what the Reasonable Rent ought to be, and why. And prevent many of these closures ........... reply

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