Shopping centre leasing enquiries rising as overall outlook brightens: Jones Lang LaSalle survey

The shopping centre rental outlook is improving with the number of shopping centre managers reporting an improvement in tenant enquiry outnumbering those reporting weak tenant enquiry for the first time in over 18 months. 

The last time this occured was in September 2011 quarter.

This was the headline result of the latest Jones Lang LaSalle Shopping Centre managers’ survey carried out in February, which also found that customer foot traffic increased and passing specialty rents showed improved growth.

Customer numbers grew by an average 2.8% over 2012, according to the survey, which is based on the views of 96 shopping centre managers in Jones Lang LaSalle’s managed portfolio.

“Leasing enquiry levels strengthened in the December quarter, with 27% of centre managers reporting stronger enquiry compared with just 18% in the September quarter,” says Richard Fennell, Australian head of property Management at Jones Lang LaSalle. 

The improved rental sentiment comes as department store retailer Myer – an anchor tenant in many shopping centres - reported better-than-expected interim net profits of $88 million in the first six months of its financial year to January 26 and total sales up 2% to $1.73 billion. 

Analysts had tipped interim net profits of around $85 million. 

The outlook for retail sales is also more bullish with 53% of centre managers expecting some growth in sales over the next 12 months. 

Only one in five expected a decline in sales, which is the lowest level in the six surveys conducted to date. 

Less than half of respondents (43%) expect to see rental growth in the next 12 months, but this is up slightly from 39% in the November survey. 

Face specialty store rental growth is also slowly accelerating. 

The average passing specialty rent for sub-regional centres rose to 3.8% over the year to December 2012 up from 3.0% in the year to September 2012, while neighbourhood centre rents rose marginally from 3.5% per annum to 3.6% per annum 

On a state-by-state basis, shopping centre managers in WA were the most positive  about the year ahead, "due to continued strong economic conditions and the relaxation of Sunday trading laws in August 2012". 

Supermarkets and food retailers are the most active retailers looking to expand their operations, although enquiry in all categories remains subdued.

“Retailers are still facing very competitive market conditions and we expect national tenants will continue to take a cautious approach to new store commitments, but encouragingly, the survey found leasing enquiry levels are improving,” says Fennell. 

“The outlook for sales growth and rental growth is still fairly subdued, and centre managers believe the two will be very closely linked over the next 12 months.” 

Jones Lang LaSalle director of research and consulting, David Snowsell said the latest results show that a “level of cautious optimism” coming through but with the view “still very different across individual centres.” 

“The results are consistent with our view that the recovery for retail will be gradual and patchy. 

“Nevertheless, there are some supportive factors which will be positive for the broader retail sector in the short term. Consumer sentiment has improved the last couple of months, and spending within some discretionary retail categories is growing, albeit at a relatively slow rate.” 

“We expect these trends to begin to stimulate shopping centre performance over the short to medium term as the recovery persists,” says Snoswell.