1 week Ago By Varun Godinho
Australia’s big shopping malls are performing better than expected this year. Westfield operator Scentre Group, for example, said last week that it welcomed 429 million customer visits so far this year, 8.7 million more than the same period in 2023.
A record $28.8 billion of annual sales was achieved by its business partners to 30 September 2024. Its portfolio occupancy was 99.
4 per cent as of 30 September 2024, and gross rent collections during the nine months to that date were $2,073 million, $78 million more than the corresponding period in 2023. Similarly, mall landlord Vicinity Centres beat its earnings guidance over FY24 and lifted occupancy to its highest level since before the pandemic. Vicinity, which co-owns Chadstone Shopping Centre, reported operating earnings of 14.
6¢ per security. Net profit came in at $547.1 million, double the $271.
5 million in FY23 One of the key reasons that existing malls are believed to be doing well is because of the lack of new supply. Trevor Gerber, the chairman of the $9.5 billion Vicinity Centres, told his AGM last month that despite the “relatively flat retail sales growth environment” retailer confidence was robust with more than 2000 leases struck during the 2024 financial year, at generally increased rents, and on terms that strengthen our current and future income profile”.
He added that in the longer term, “the fundamentals of Australian retail property continue to be favourable, supported by population growth, strong employment, the increasingly symbiotic relationship between physical retail stores and online, and with limited investment in new retail supply.” JLL’s head of capital markets research in Australia, Andrew Quillfeldt, says that in the four years to 2027, new retail supply will fall more than 1 million sqm short of the shopping space required by the growth in population, reported the Australian Financial Review. In the September quarter, GPT group struck new leases at rents on average 3.
5 per cent above the outgoing figure and usually with annual average fixed rent increases of 4.9 per cent. For Scentre Group, the average specialty rent spread was 2.
7 per cent in the September quarter, coupled with annual, inflation-linked, rental rises of around 5.5 per cent. New tenants are also moving into regional shopping centres that are worth less than they were a decade ago.
JLL’s Quillfeldt estimates that regional shopping centre values fell 6 per cent in the two years ahead of Covid-19 due to concerns about income sustainability, another 14 per cent during Covid-19, and then 11 per cent with the post-Covid-19 rise in bond rates. In total, it put the rewind in values close to 30 per cent. Scentre Group and investment bank Barrenjoey finalised the acquisition of a half stake in Adelaide’s Westfield West Lakes for $174.
8m earlier this year. GPT Group acquired a 50 per cent stake in Northland Shopping Centre for $496 million. The GPT Wholesale Shopping Centre Fund (GWSCF) bought the stake from the Canada Pension Plan Investment Board.
Last year, Vicinity bought back half of Sydney’s Chatswood Chase for 45 per cent of the price paid last decade. Last week, MSCI announced that larger shopping centres were “back in favour”, with transactions up 53 per cent for the first nine months of the year to deliver the best year since 2018. “Whilst grocery-anchored centres have driven retail activity in recent years, the demand has broadened to include regional, major and super-regional centres, driven by population growth and anticipated rate cuts in 2025,” said MSCI’s head of Pacific Real Estate Research, Ben Martin-Henry.
The high interest rate does not seem to be dampening the demand for malls. Scentre Group said that it has a $4 billion pipeline of future retail development opportunities, with work continuing on the reconfiguration of department store space at Westfield Bondi and Westfield Burwood in Sydney and Westfield Southland in Melbourne. While the mall operators seem to not be as affected by the high interest rates, retailers are reeling under the effect of it.
Earlier this month, the RBA decided to leave the rate unchanged at 4.35 per cent which led the Australian Retailers Association (ARA) to call the decision a “missed opportunity” to help households and businesses. “Small businesses are particularly vulnerable, with ongoing pressure from many directions including higher business costs across the board,” noted Paul Zahra, chief executive officer of the ARA.
He added that “urgent action” was required to ensure Australia’s $430 billion retail economy “not only survives, but thrives.”.
