A retail tenants’ market as shopping centre rental growth slows: Jones Lang LaSalle

Pessimists outnumbered optimists in the latest quarterly Jones Lang LaSalle (JLL) survey of shopping centre manager sentiment despite a strong lift in sales.

Only 48% of shopping centre managers surveyed in the May quarter survey expect some growth in sales turnover over the next 12 months compared with 53% of managers surveyed in February.

This is despite the survey being carried out after the RBA cut the cash rate to a 53-year low of 2.75% and JLL reporting strong annual sales turnover growth across its managed portfolio averaging 4.4% for sub-regional centres who took part in the survey and 5.2% for neighbourhood centres.

The quarterly survey of managers of the 173 shopping centres that make up Jones Lang LaSalle’s managed portfolio indicates that it remains a tenants market with speciality rental income growth slowing in the year to March 2013, particularly for sub-regional centres and rental incentives “necessary for both new and sitting tenants”.

Average rental growth of just 1.2% was reported for sub-regional centres in the 12 months to March 2013, down from 3.8% for the year to December 2012.

“It continues to be a tenants’ market, with landlords keen to maintain high occupancy and quality tenants within their centres at a time when new enquiry is subdued,” notes the report.

The latest drop in shopping centre manager sentiment mirrors recent Westpac-Melbourne Institute consumer sentiment data with consumer sentiment falling by 7% in May and 11.7% over the past two months, to now sit at 97.6, below the 100 neutral mark.

“The retail market remains challenging.  The improved sentiment of centre managers reported in our February 2013 survey was short-lived,” says JLL Australian head of property management, Richard Fennell.

Shopping centre managers identified the economic outlook as their number one concern, with 50% expressing negativity about the year ahead compared with 46% in February’s survey.

Impact on Turnover Performance (%)

Impact

V. Negative

Slightly
negative

Neutral

Slightly
positive

V. Positive

Economic Outlook

8

42

35

16

Competition from other centres

15

27

51

7

Online retailing

8

34

55

3

Expected changes in tenancy profile

5

7

53

29

6

Planned refurbishment activity

5

3

66

20

6

Growth expectations within trade area

1

5

65

27

2

Political Environment

3

35

47

15

1

Source: Jones Lang LaSalle

The other key concerns were competition from other centres, the online shopping threat and the political environment.

“The political environment continues to be an area of concern,” says JLL research director David Snoswell.

“However, there are now more centre managers expecting a positive improvement in trading prospects in the year ahead due to the political environment compared with three months ago.  This may reflect a decisive election outcome for September.

“Certainly there are now fewer ‘fence sitters’ in judging the impact of the political environment on trading as the election gets closer.  Those surveyed expressing the political environment as having a ‘neutral’ impact on turnover performance dropped from 77% in November 2012 to 56% in February and then 47% in May,” he added.

The latest survey found that food retailing continues to outperform while clothing remains the concern.

“Our May survey highlighted the poor performance of apparel in larger sub-regional centres as a major concern for centre managers,” says Fennell.

“Getting the tenancy mix right is paramount.  Traditional views to the optimal tenancy mix are being challenged with many centres now focusing more on providing a greater mix of services, often at the expense of the fashion offer.

“However, improved ABS sales figures in department store retailing and clothing, footwear and personal accessories are starting to come through, even if they are coming off a low base,” he adds.

Customer numbers grew by an average 1% in the year to March 2013 with sub-regional centres (2.4%) and neighbourhood centres (5.5%) outperforming CBD centres, which have struggled to maintain their customer numbers.

This article first appeared on Property Observer.

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