Paul Blackburne’s leap of faith into Subiaco
Shopping centre owners are increasingly exploring ways to incorporate residential components into retail districts.
THERE is ample evidence of the value residential populations near shopping precincts can bring.
Victoria’s Chadstone stands out as one of Australia’s largest shopping centres, with the Vicinity Centres and Candel Group asset including significant residential and office components.
West Village in Brisbane, acquired by Centuria Capital and GIC earlier this year, features 1,200 apartments and a 6,500 square metre office tower.
Closer to home, Karrinyup Shopping Centre is set to include almost 350 apartments in the land surrounding the centre, with Blackburne’s recent approval for 14- and 24-storey towers.
This recent approval adds to Blackburne’s 94 dwellings already under construction at Karrinyup.
Perron Group’s $1 billion Cockburn Gateway development is expected to be bordered by more than 900 dwellings.
Like Karrinyup, the redevelopment is set to include a host of food and beverage outlets, and space for professional services and entertainment.
As Perron Group chief executive Adam Irving explained, the shift towards more people living near shopping centres aligned with an expansion of what the centres offered.
“Over time, [shopping] centres will become far more diversified in terms of what they offer customers and the community in general,” Mr Irving said.
“We see them as more akin to town centres, almost the notion of a village, where people go not just to buy their weekly groceries and other consumer goods, but also to eat, drink and be entertained.”
Recent data from the Australian Bureau of Statistics showed Western Australia’s retail turnover increased by 10.5 per cent in the year to July 2022, with WA recording $3.8 billion in retail spending in July.
JLL statistics show that e-commerce represented 14.7 per cent of the national retail spend in May 2022, up from 13.2 per cent in the previous year.
Shopping centre owners are moving away from being pigeonholed as providing solely retail offerings, as the landscape evolves to keep pace with changing consumer needs.
Pressures from e-commerce, an increasingly competitive retail landscape, and a push for convenience are large drivers of these shifts. Centuria Capital’s Primewest, which has moved to the top of Business News’s Data & Insights shopping centre owners list this year, owns $1.26 billion of retail assets across the state.
Primewest general manager WA and Centuria Capital head of retail, Bruce McCully, said WA would catch up to other states when it came to attracting population growth near shopping precincts.
“Mixed use is definitely on the rise,” Mr McCully told Business News. “When people talk about residential going in [near shopping precincts], I think that’s something that we’ll see happen more and more … over the next sort of five to 10 years in WA.
“The east coast is really big on mixed-use developments, [but] in WA we’re sort of lagging a little bit behind that.”
Mr McCully said WA’s urban sprawl partly accounted for it trailing other states in this regard, but planning was under way to incorporate more homes near shopping precincts.
The City of Vincent’s plans to turn its The Avenue and Frame Court car parks into mixed-use sites recently entered a public consultation phase.
Mr McCully said sites such as these had potential to turn into developments linking to the main streets of the suburb, creating new town centres.
WA property syndicator APIL, which owns Floreat Forum among a host of other retail centres around the state and on the east coast, is currently seeking to acquire other local retail assets.
The group, which recently launched a new retail income fund, manages about $500 million of retail assets across WA, which makes up about 70 per cent of its portfolio.
APIL acquisitions manager Nic Hughes said the group was considering the planning around several of its assets, with the potential to include residential components.
“There’s potential for mixed-use developments across a number of these assets,” he said.
“It is certainly something that adds value. It’s like a kicker. You buy the asset for the income stream and then you get a future benefit down the line.
“It also adds flexibility to the exit strategy, deepening the pool of potential buyers and future uses.”
Mr Hughes said tenants’ use of retail had evolved in recent years beyond the exchange of goods to incorporate more services.
“There was a time when fashion and goods were a major part of shopping centres, and now it’s transitioning to a lot of services,” he said.
“You might have had five of six fashion retailers and that’s become a medical centre, nail and beauty services, that’s definitely become the focus.”
This shift is represented in the state’s review of its retail tenancy legislation, which is considering extending the definition of retail to service providers (see page 44).
Mr Hughes said physical retail still played a significant role in WA, even as many shoppers looked to buy online.
“I think online shopping has definitely had an impact on bricks-and-mortar retail, but I’m not convinced it’s going to spell the end of it,” he said.
He added that the rise of click-and-collect with supermarkets was potentially problematic for speciality retailers that relied on foot traffic, but it was all part of the evolving space. City pressure
National research from CBRE shows Perth CBD retail vacancy is the highest in the nation, at 28.4 per cent for the first half of 2022, compared with the national average of 17.4 per cent.
The real estate group’s survey of 4,838 retail outlets showed Brisbane’s CBD retail vacancy was at 18.9 per cent, Adelaide at 18 per cent, Melbourne at 15.1 per cent and Sydney at 6.9 per cent.
The Property Council of Australia WA’s latest office market report showed Perth’s office occupancy levels had lifted to 71 per cent of pre-COVID levels, which is expected to provide a much-needed boost to foot traffic.
CBRE senior director and WA head of retail Fred Clohessy said a lift in Perth’s office occupancy would help the retail sector, as well as mooted developments for the CBD.
Among these are Edith Cowan University’s CBD campus, a revamped Yagan Square, Fiveight’s Carillon City redevelopment and Randal Humich’s proposed $160 million redevelopment on the corner of Barrack and Hay streets.
The City of Perth’s recent motion to engage with industry to accelerate residential development in the city is also expected to lead to improvements in retail activity.
Mr Clohessy added that Perth’s retail market would benefit from a return of migration, driven by the state’s relatively affordable housing market and high employment.
Lease Equity managing director Jim Tsagalis recently visited retail districts in Sydney, Melbourne and Singapore, to gauge the market sentiment compared to Perth.
“The recurring theme across the globe is CBDs are compromised, because they rely heavily on office, accommodation and tourism,” Mr Tsagalis told Business News.
“You’re starting to see business travel come back and that’s having a positive effect.”
Mr Tsagalis said suburban centres were performing well in most jurisdictions and luxury retail had boomed throughout COVID as cashed-up consumers looked to spend what they otherwise would on travel. Business News understands Cartier and Celine have signed deals to move into the Country Road building on Murray Street, which recently closed. High-end makeup retailer Sephora is set to move into the Centuria Group- owned 1 Forrest Place (also known as 242 Murray Street) next month, after entering the WA market last October at Karrinyup.
Primewest’s Mr McCully said he hoped the move would revive the Forrest Place precinct, after recent disruption with its redevelopment. He added that he saw a positive future for CBD retail, particularly as more luxury brands sought to open stores in the heart of Perth.
Transactions Perth independent property consultancy Y Research principal Damian Stone and Sydney-based Data App director Rob Ellis partnered via Property Advisory Research (PAR) Group
to assess retail transactions nationally.
After a record year of sales for shopping centre assets last year of $13 billion, this year just $3 billion of shopping centres have changed hands across the country.
In WA, the most significant shopping centre asset sale was Forrest Lakes Shopping Centre for $81.5 million in July. Business News understands Stockland has sold Bull Creek Shopping Centre for
$78 million, and North Beach Shopping Centre is due to settle for $40 million. Hillarys Shopping Centre has sold to Hawaiian, reportedly for $34.2 million, and Ocean Reef Shopping Centre has
sold for $12.15 million.
Business News also understands that Midland Centrepoint and Lendlease’s Southlands Boulevarde in Willetton are in due diligence. Meanwhile, AMP Capital has sold its real estate portfolio to Dexus, with the sale anticipated to be complete by the end of the month.
Once the sale is finalised, Dexus will take over the management of Ocean Keys Shopping Centre and GPT Group will take over management of Karrinyup Shopping Centre.
Mr Ellis said he expected a number of centres would sell in the last quarter of 2022. He said capitalisation rates for neighbourhood and large-format retail centres had softened, due to recent interest rate increases and anticipated further rises.
Mr Stone said increases in non-discretionary spending, such as groceries, as inflation affected consumers would sustain the high demand for neighbourhood centres. “The [places] that are resilient are the centres that have more of a grocery, local services, post office, bank branch, medical centre … they’re going to develop foot traffic,” he said.
Mr Stone said population growth would sustain retail districts. “It doesn’t matter if it’s suburban or in the city, it’s [about] catchment growth; you need to bring in more people,” he said.
Cygnet West commercial agency associate director Tim Scott’s recent research into the state’s retail sector found the average neighbourhood centre sale in the past five years was about $21 million.
Mr Scott told Business News WA’s larger-scale shopping centre market was tightly held, with very few assets above $200 million sold during the past seven years.
“Neighbourhood centres are attracting the most demand, in particular centres that have high underlying land value, excess developable land, a limited number of tenancies and a newer build,” he said.
Mr Scott added the build-to-rent market made sense for shopping centre owners, given the institutional ownership structure of these assets. r Hughes said retail had proved to be a resilient asset class, rebounding following the previous two years of COVID lockdowns. “I’m not going to say they are as secure as a bond, but there’s a high percentage of income that could be considered a lower risk than incomefrom other sources,” Mr Hughes told Business News.
“Retail assets are drifting out to the right yields, which we can play in, so it’s got a lot of our focus at the moment.” Retail property in WA is attracting yields of about 6 per cent, trending back towards where it was in 2018, as interest rates increase from emergency levels. “There needs to be a clear spread between the yield we’re buying retail assets at and what term deposit style-investments are giving out,” Mr Hughes explained.
“A lot of our investors are putting money into something and hoping to get a source of income to live on out of it.”
27th February 2024
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