Investors have snapped up $7.8 billion worth of retail property in the high-end malls in the past year as they take advantage of the growth in consumer spending and take a safe-haven approach in bricks and mortar.
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That represents a 29 per cent rise year on year.
The pursuit of the assets comes as retail property landlords generate strong revenue from all aspects of the centres, not just in rents from tenants, but advertising – even on the boom gates in the car park – the car parks and the new age technology.
Westfield and the Australian Scentre, AMP Shopping Centres, GPT and Mirvac are all investing heavily in the digital world as a complementary connection to the physical shoppers.
The sale by Scentre Group of four malls at $738 million was an indication of the rising demand for these high-yielding properties.
According to agents, offshore investors accounted for a major share of buyers at 19 per cent, but unlisted funds were the dominant buyers, accounting for 40 per cent of acquisitions.
Subregional and neighbourhood shopping centres are a clear standout, accounting for about two-thirds of the transactions in the 12 months.
Simon Rooney, head of retail investments for JLL Australasia, said capital market conditions remain strong and very accommodative of major transactions, with high equity availability and low cost of debt fuelling activity.
He said volumes will be also strong in the second half of 2015 with almost $700 million worth of transactions pending, including: Paradise Centre, Gold Coast, valued at more than $240 million; Brand Smart Premium Outlet Centre, Victoria in excess of $70 million; Jam Factory, Victoria in excess of $160 million; Stud Park, Victoria in excess of $150 million and Forrestway, NSW in excess of $110 million.
"Large institutional investors are increasingly active in utilising the current ideal market conditions to undertake tactical transactions to reposition their retail portfolios in order to realise long-term strategic objectives."
Challenger, which bought Scentre's North Rocks centre, NSW, has emerged as one of the most significant buyers of retail property over the last few years, having acquired more than $1.3 billion of retail assets since 2012. Mr Rooney negotiated the sale.
Lachlan MacGillivray, head of retail investment services at Colliers International, said the improving retail trading conditions are fuelling further confidence in retail investors.
"A lack of supply and record levels of demand for high-performing assets are contributing to yield compression," Mr MacGillivray said.
"However, this has not deterred investors, particularly those from offshore, who accounted for 16 per cent of all transactions in the sector, showing a particularly strong interest for assets with development potential.
The yield compression in retail, being driven by a pricing disconnect between prime office and retail, is expected to see record pricing for any quality retail assets that come to market, he said.
Mr Rooney said investors continue to pursue a range of transaction structures, joint ventures and capital partnership arrangements.
"Paradise Centre, Queensland and the ARIO Portfolio of three assets in Queensland are the most recent deals that have come to market and are expected to transact for in excess of $240 million and $200 million respectively. The ARIO Portfolio will be offered individually or in one line.
"Most investors remain open to a wider variety of investment opportunities to access scarcely available assets and achieve solid returns while at the same time remaining prudently cautious towards risk."
