More than $10 billion set to be invested in retail assets over 2014

Investor appetite for retail investment assets shows no signs of waning this year, with more than $10 billion worth of funds from local and offshore players ready to be invested.

It follows a year of record turnover for the retail investment market, which saw more than $7 billion worth of stock changes hands. The previous high was $6.5 billion in 2012.

The figures were released in the latest Jones Lang LaSalle annual Australian Shopping Centre Investment Review and Outlook Report for 2014, which attributed portfolio re-weighting, capital partnering and deep liquidity in capital markets for driving activity to the new heights.

Volumes for three of the five traditional retail formats hit record highs in 2013 – sub-regional ($1.8 billion), neighbourhood ($1.2 billion) and bulky goods ($ 1.1 billion), “reflecting the ‘capital cascading effect’ from major assets into portfolios of smaller format shopping centres,” the report said.

Investment demand is expected to remain just as strong this year.

“2014 is going to be another highly active year with significant and on-going market liquidity providing a conducive environment for strong levels of retail transaction activity to continue,” said JLL head of retail investments for Australasia, Simon Rooney.

“The volume of capital seeking retail investments is significant, and currently exceeds the level of stock available.

“We are managing over $10 billion of investor mandates from domestic and offshore sources, approximately half of which is seeking a passive joint venture position.”

Several key trends are expected to characterise the investment market in 2014. Among them, said the report, was persistent demand from major unlisted funds and superannuation funds, continuation of the cascading effect into various retail formats, more capital partnering to facilitate offshore investor demand and a wider variety of structures to joint venturing.

A-REITs could also continue to refine and re-weight their portfolios while making selective and strategic acquisitions.

“As we move into the next phase of the investment cycle, availability of core product is likely to become more tightly held and we expect investors will need to become more aggressive in their approach to secure major high quality retail assets,” said the report.

“Pricing will therefore become more competitive and this is forecast to translate into yield compression for core quality assets.

“With a broader buyer pool targeting secondary assets, yields are likely to stabilise in line with underlying asset performance.”

This article first appeared on Property Observer.

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