NSW/VIC retail property market round-up

Increased yields are helping to restore traditional characteristics to property investment opportunities, according to property research provider LandMark White (LMW).

LandMark White has released an overview of the retail property markets in New South Wales and Victoria that shows increased yields in 2008, following the “disappointment of flat to falling markets in 2007”.

The group reports an increase in yields and a renewed focus on “the fundamentals of the core assets such as location and lease covenant, rather than investors taking any opportunity regardless of the long-term prospects of the asset”.

In the NSW retail property market, rental growth is “up over the last 12 months after a prolonged period of minimal growth”, the report said. Total average prime yields have increased over the past six months to 7.08 per cent.

LMW Group national research director Vanessa Rader said rental growth has benefited from an improvement in retail turnover over the past five years, but the outlook for retail has softened as sentiment declines.

“Across NSW, total average retail rents increased just over 2 per cent in the June quarter compared to the previous quarter, with annual growth reaching 12.15 per cent after a prolonged period of limited growth,” she said.

As a result of the current economic environment, the group noted that smaller retailers would be hardest hit, increasing vacancies within retail centres.

“This increase in average prime yields can be attributable to the continued impact of the availability and cost of debt, coupled with interest rate increases, which has seen discretionary spending weaken,” Rader said.

In NSW, “retail located within the CBD continues to record the lowest yield, however, with the yield nearing 6.5 per cent, it is the highest result for the CBD since 2004”.

In the Victorian retail market there has been limited rental growth achieved across all retail types, with investment activity falls leading to increases in yields.

“While the recent interest rate decrease will assist, retail trade is expected to wane over the next five years,” the report said.

“Now in this market of lower sentiment, greater consideration is being given to the asset fundamentals, including location and lease covenants, resulting in a modification to average yields.”