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Retail asset transactions gain best market share in 20 years

For the first time in nearly 20 years, retail assets have made up the largest portion of commercial property transactions.

According to JLL Research, retail transaction volumes topped $6.25 billion, representing 36 per cent of the traditional property sector in 2023.

Over this period, office transactions decreased to a 30 per cent market share ($5.14 billion), while industrial transactions represented 34 per cent per cent ($5.92 billion).

JLL Retail Investments Australia and New Zealand Senior Director, Nick Willis, said retail had an impressive 12 months.

“In a year of subdued transaction volumes in global capital markets, retail property in Australia has for the first time in 20 years been the most liquid sector with over $6 billion transacted, demonstrating the returning capital demand,” Mr Willis said.

“Whilst formal on-market offerings for retail assets were significantly constrained in 2023, the weight of capital drove a year dominated by off-market transactions led by buyer mandates. 

“Globally, the performance of the retail sector is driving renewed interest, and whilst the majority of this capital is focused on higher return opportunities, core capital is re-engaging given the attraction of the robust underlying fundamentals of the asset class.”

JLL Research indicated that the Q4 2023 retail sales figures represented almost 60 per cent of the total $5.52 billion of sales for the calendar year, with $1.95 billion of regional and sub-regional transactions dominating the final three months.

The buyer profile in 2023 was also dominated by local fund managers and syndicator capital across all retail sub-sectors accounting for more than 40 per cent of total sales.

Mr Willis said managers had identified value in the regional and sub-regional sub-sectors last year, notably Haben acquiring its first regional classified shopping centre in Stockland Townsville for $238.5 million. 

“However, further to syndicate capital activity, the higher cost of debt has increased participation from ultra-high net worth investors who have a lower cost of capital, including the recent sale of Rosebud Plaza to a Sydney private for $134.5 million,” he said.

Head of JLL Retail Investments Australia and New Zealand, Sam Hatcher, said the retail theme was validated by the continued strength in tenant performance, limited supply of floor space across all sub-sectors and heightened deal flow aiding underwriting.

“Further, funding for retail remains positive given the diversification of income providing stable interest cover ratios compared to other traditional asset classes which are often linked to one or two major tenant expires,” Mr Hatcher said.

Head of JLL Capital Markets Research Australia, Andrew Quillfeldt, said retail outperformed the other sectors.

“Retail transaction volumes were only down by 8 per cent, year-on-year, compared with -41 per cent across all sectors, reflecting the slew of deals occurring in late-2023,” Mr Quillfeldt said.

“While the outlook for rates has been volatile, global capital markets are now reflecting lower official cash rates for many of the major established markets, which is helping to improve conviction in underwriting future funding costs for real estate investors and that the current round of monetary policy tightening from central banks may have concluded.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.