INTEREST IN RETAIL PROPERTY SPIKES AS INTERNATIONAL BRANDS LOOK TO ROLL OUT IN AUSTRALIA

AN influx of international retail brands into Australia over the next five years are expected to push up demand for floor space, says CBRE head of research for Australia, Stephen McNabb.

The retail commercial property sector is attracting keen interest, despite a modest rental growth of 1-2 per cent forecast in the year ahead, according to CBRE's new Australian Market Outlook report.

McNabb says it is because international retailers are continuing to target Australia as more domestic retail brands continue to close their doors.

"According to our retail brand database, more than 90 existing international retailers are looking to roll out stores across Australia over the next five years and another 50-plus brands are looking at launching their first flagship store," he says.

"Over the next five years, up to 1.2 million square metres of retail stock will be sought by international retailers, which will almost absorb the total supply pipeline and help fill space that may be vacated by discount department stores and other retail incumbents."

The report says property fundamentals in the office sector are strongest for Sydney, Melbourne and Canberra, given the positive outlook for net effective rent growth in the cities.

McNabb expects Sydney and Melbourne will drive the trend. 

"The distinguishing factor is the outlook for rent growth of circa 8 per cent in Sydney and Melbourne in the next three years," says McNabb.

The industrial and logistics sector will also be characterised by strong growth as developers seek to combat the effects of e-commerce by future proofing their assets.

"A number of new developments are being built with increased ceiling heights and tensile strength in flooring to ensure they are being able to handle a high turnover of consumer goods, while older warehouses at the city fringe are being retrofitted to service last mile delivery," says McNabb.

"Automation is also fast becoming an important part of design considerations, with newer facilities being built accommodate the power requirements associated with robotics and 24 hour operations.

"Tenants are also increasingly seeking increased amenity with some logistics developments featuring child care, high quality cafes and access to public transport."

Across all fields of the property market, the rate of yield compression for prime assets lost momentum in 2016 with the cycle pegged to end in 2017.

Business News Australia