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Retail sector under pressure – City outlook – Part 2

Adelaide

A buoyant local economy, driven by growth in the defence and mining industries along with record levels of overseas migration and job growth, has seen a rise in consumer spending in the South Australian retail market in 2007/08, however the market is expected to slow over the remainder of 2008.

According to the report, the most recent data has revealed a continuation of that trend with turnover increasing by 0.4% in March and 0.5% in April.

The report said South Australia had performed above the national growth average since mid 2007 and the latest figures showed SA remained slightly ahead.

It found consumer spending, by industry, declined slightly in the food retailing sector in April, while clothing and soft goods had also been on the decline since February, however, hospitality and services had managed to counter most of this decline by achieving the largest growth of all industries in April.

Adelaide's key shopping strip, Rundle Mall, continued to perform strongly with very few vacancies. Rents now average from $1500 to $4000sqm gross with rents in the popular centre of the mall achieving higher rents from $2500 to $4000sqm gross.

On the investment front the report found despite the limited number of sales (over $5 million) the market appeared to be on track for a successful year with the sale of the 23,800sqm Parabanks Shopping Centre in April for $87.5 million and a Coles Supermarket at Plympton for $5.07 million.

Economic growth in Brisbane continues to outperform the rest Brisbane

The report found while economic growth continued to outperform the rest of the nation, there was a visible slowing of the State's economy caused by a decline in consumer spending which was expected to result in a slight softening of yields over the coming year.

Despite the easing, the annual rate of retail growth in Queensland was 7.8 per cent in February which was higher than the 6.2 per cent annual growth recorded for the rest of Australia.

The report found continued population growth during the next 12 months will be one of the major factors driving new retail development, investment sales and retail leasing activity.

Planning is underway to redevelop Rochedale in Brisbane's outer south into a major retail precinct estimated to cost $120 million. Significant plans also are being processed for a residential community and town centre involving a major shopping centre and retail amenities at Ripley in Ipswich and there are several other major retail developments earmarked for Queensland's South East, including the Peregian Springs Shopping Centre on the Sunshine Coast, Petrie Police Barracks redevelopment in Brisbane, Woolworths in Yeppoon and redevelopment of Robina Town Centre.

However the hive of development activity looks set to ease in late 2009 and throughout 2010 as the economy is expected to slow with GDP declining and consumer spending anticipated to taper off from 2009 onwards, the report said.

Melbourne outlook is for more moderate growth Melbourne

The report found the strong economy had driven rental growth and seen prime yields tighten, however the general economic slowdown in 2008 had seen turnover decline by – 0.9% in April, after an increase of 0.4% in March, predominantly reflecting the strong decline in food retailing, while in the investment market uncertainty had seen limited sales activity this year.

CBD retail vacancy was estimated to be at less than 4% with clothing, footwear and soft goods retailing remaining the dominant retail categories in terms of floor space.

The report found average rents had increased by 20% over the last 12 months, however the outlook was for more moderate growth.

The report suggested the amount of retail development and expansion currently underway, including the $220 million Westfield Doncaster (45,000sqm), and $158 million Chadstone Shopping Centre (30,000sqm) developments, said much about the confidence key players had in the market.

Perth

The report found the strength of Perth's CBD retail market continued to grow, with demand for space remaining high and CBD rents lifting between 5 per cent and 8 per cent in the 12 months to March on the back of strong turnover.

It found confident industry players were preparing to plough more than $500 million into expansion and development projects in the state over the next three years in spite of concerns about ebbing consumer sentiment.

An estimated 72,000sq m of additional retail space is expected to be added to WA's 2.3 million square metres of metropolitan shopping centre space in 2008, with a further 63,100sqm to come in 2009

On the sales front, the only major transaction this year has been the sale of a 25 per cent stake in Karrinyup Shopping Centre for $152.5 million on a passing yield of 5.15 per cent. Yields are expected to remain low in 2008.

Very limited activity recorded in Sydney Sydney

According to the report retail turnover in NSW has been steadily declining since mid 2007, and is expected to further decline. The latest figures show turnover increased marginally by 0.05% in April after a – 0.6% decline in March.

It found limited investment sales activity with only three transactions over $6 million this year, however private investors were "desperate" for high profile retail sites with good covenant from a strong retailer in the $1-2 million price range.

The report found city fringe areas were seen as offering valuable opportunities to enter the market.  Generally population in these areas still have reasonable disposable income so good retailers are still expected to trade strongly, the report said.

It found some institutional investors had turned their focus to strengthening their existing assets as opposed to purchasing including current and proposed expansions of assets such as Chatswood Chase, Merrylands, Charlestown Square, Castle Towers and Wollongong Central.

According to the report NSW has approximately 20 shopping centre, bulky goods and supermarket projects underway with a development value of around $800 million.

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