The retail market is in great shape, according to Jones Lang LaSalle Research and Consulting, which shows yields have continued to firm across the board.
The regional retail market has been especially strong, with yields at the upper end currently as low as 4.75% in Sydney and Melbourne.
Over $5.2bn worth of retail assets have exchanged hands in Australia over the 12 months to September, almost 50% up on the $3.3bn exchanged during the previous year.
"Retail investments are seen as highly stable and secure, as evidenced by the fact that retail yields in some sectors are lower than the current face bond rate," said David Snoswell, national retail research director - Jones Lang LaSalle. "However, when taking into account real bond rates adjusted for inflation, retail assets are still offering a higher return,"
Sales in the last six months include the $738m 50% sale of Westfield Doncaster to LaSalle Investment Management/Prudential's Asia Property Fund at a yield of 4.75%,
and according to Tony Doherty, Jones Lang LaSalle's Australian head of retail, the recent interest rate hike has yet to show any significant effect on retail spending.
"While the effect of the latest interest rate rise on September retail trade is yet to be revealed, spending in general is expected to stay strong, especially given that consumer sentiment does not appear to have been significantly dented by the recent rate rise," he said.
Further interest rate hikes are the only worry in this strong climate, with 2008 looking set to be a record year for new supply in the retail market. There is 976,000m2 of new supply under construction, or with planning approval, according to Jones Lang LaSalle Research, which is scheduled to complete next year. This compares to the 2007 expected total of 650,000m2 .
The sub-regional sector had especially strong supply growth in 2007, with new supply set to reach 219,100m2 by the end of the year, the strongest annual supply on record since 1989. Half of this new space is located in South Eastern Queensland.
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