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Retail investment hits $5b as landlords remix malls

Investors snapped up close to $5 billion of retail assets during the pandemic-hit 2020, as they sought out higher-yielding and income-generating assets that were predominantly anchored by supermarkets and general convenience-style tenants.

JLL director of Australian retail investments Nick Willis said growing demand for defensive neighbourhood retail from a range of private and institutional capital sources, both domestically and offshore, is driving more competitive pricing and yield compression.

Castle Towers, the main shopping centre Sydney’s Castle Hill.

Castle Towers, the main shopping centre Sydney’s Castle Hill.Credit:Brendan Esposito

He said the wide yield spread relative to prime CBD office and prime industrial is attractive to a range of investors given the consistency and reliability of income.

The surge of cash is coming from domestic buyers and overseas investors who see Australia as a haven with a stable economy and low rates of tenant defaults compared to other countries.

Retail landlords are also doing their best to transform malls into community hubs, with a focus on food, entertainment and medical centres and less reliance on volatile discretionary-based apparel and department store tenants.

Michael O’Brien, QIC’s head of global real estate, said domestic spending (and consumer spending in particular) will continue to drive the Australian economy as long as the low number of COVID-19 cases continued.

Speaking at the Shopping Centre News′ Big Guns event last Friday, Mr O’Brien said changing the tenant mix in the malls, of which QIC owns Castle Towers in Sydney’s west and Pacific Epping in Melbourne, will underpin the attraction for retail investment and customer engagement.

“Beyond 2021, cafes, restaurants and food services are expected to be the strongest performers, growing at 4.7 per cent per annum over the next ten years, reflecting the shift in consumer preferences for dining out,” Mr O’Brien told the event.

“Over many years, we have strategically acquired adjoining land and worked in partnership with local and state planning authorities to unlock zoning, density and height limits to provide opportunities for value-add developments across a wide range of uses such as office, medical, childcare, education, residential and hotel.”

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