Urbis Think Tank
The wheel is turning – are sub-regional retail centres the next hot ticket?
For some time, Urbis has noted a lack of purchaser demand for sub-regional retail centres. However, the first signs are emerging that this pattern is turning. We are now seeing more activity in the smaller to mid-sized sub-regionals, particularly up to the $30m mark. There have been limited transactions beyond that mark.
What we have noted is that equivalent yields are typically between 7.75% to 8.75%. Yields below 8% are typically only for centres with development potential, repositioning potential and/or significant opportunity for positive rental reversions in the short to mid-term.
Despite this shift, it is still the private investors and syndicates who are showing most interest, and for these groups, they can only access up to around $30m, or perhaps $100m for large syndicates. Above this level, the institutional investors will generally only purchase Sub-Regionals that satisfy very specific criteria in terms of development or repositioning potential, although there are early signs that the larger, more mature Sub-Regionals are coming back on to the radar of institutional investors.
One of the reasons for the support may be related to the stronger results for sub-regionals this year in comparison to the larger Regional centres. Urbis recently released the 20th edition of the Urbis Retail Averages and reported that same centre growth for sub-regional centres achieved 3.1% compared to 1.0% for regional centres. With 24 centres currently for sale, it will be interesting to watch these transactions unfold.