The dominant group was again unlisted funds, which accounted for 40 percent of deals, but offshore investment groups were also active, accounting for 19 percent of deals.
Retail Activity, Mega-Merger and Asian Investment
Two prominent Australian REITs, Novion Property Group and Federation Centres, merged to form the third largest REIT in Australia, holding retail assets worth AU$ 22 billion (US$ 17 billion). Simon Rooney, JLL Australasia’s head of retail investments, said investors are pursuing widely variable structures and agreements for transactions, including capital partnership arrangements and joint ventures. Most investors are open to a wide variety of opportunities so long as they see the potential of solid returns at an acceptable level of risk.
The interest of offshore investors in Australia increased market competition and resulted in AU$ 1.4 billion (US$ 1.1 billion) in deals for the year ended June 2015. In May 2015, Adelaide’s Myer Centre was acquired by YTL Starhill Global, a Singapore-based REIT, for AU$ 288 million (US$ 221 million). Approximately half of Asian capital investment, which represents the majority of capital investment in Australia over the course of the last 36 months, has come from Singapore. The increase in investment coming from Asia may have to do with a demand in the region for opportunities in more mature, stable economies.
According to Rooney, market conditions are uniquely conducive to major transactions. Both debt finance and equity capital are widely available for investment in the retail market. Institutional investors are taking the opportunity to reposition for the long term. He said he expects continued activity in the retail market as owners divest themselves of, or invest themselves in, strategic assets.
Shopping Center Deals Driving Growth
Two-thirds of retail transactions in the period were for neighborhood and sub-regional shopping centers. Regional shopping centers are currently posting yields closer to 2007-levels than any other shopping center format; all shopping center formats, though, are still well short of their peak yields. In the short term, indicators point to continued growth in retail spending. Tourism and employment numbers are trending upward as household wealth continues to increase.
Interest rates are at record lows, increasing available investment capital, but Rooney cautions that stronger competition for assets may cause yields to trend down. Thus, the potential for income growth is significantly lower now than in 2007. He says investors seem to be valuing this growth outlook into bid prices.
