Business Spectator2009 Stephen BartholomeuszA lucky country for...

Business Spectator
2009 Stephen Bartholomeusz
A lucky country for Westfield and Centro

The Westfield and Centro quarterly reports provide an insight into the state of global retail property markets. The worst may be over in the US and UK while the Australian market has sailed through the crisis largely unaffected.

Westfield’s Australian and New Zealand centres are almost fully occupied, with more than 99.5 per cent of the portfolio leased and the rents from its specialty store tenants growing at an average rate of 4.8 per cent. Centro’s local experience – an occupancy rate of 99 per cent and rental income growth of 4.7 per cent – is near identical.

While there has been some tapering off of retail sales generally over the past year as the impact of the stimulus packages has worn off, the resilience of the retail centres has been demonstrated by the crisis.

In the US, the picture isn’t as positive or as straightforward. Occupancy rates are lower (Westfield’s 92 per cent, Centro’s 88.6 per cent) and rental income has been falling. Westfield’s rentals fell by 3.3 per cent over the year to September while Centro’s September quarter rental income was 2.1 per cent lower than in the June quarter.

Westfield, however, says that the US portfolio has stabilised over the past six months, with occupancy rates rising, even though specialty retail sales were still declining, albeit at a lower rate. Indeed, after falling about four and a half percentage points from the onset of the crisis, Westfield’s occupancy rate has bounced back about two percentage points in the September half.

In the UK a similar rebound appears to be occurring, although rents are down on average 4.8 per cent against their level a year ago.

Centro’s US portfolio, while less exposed to the double-digit decline in specialty store sales in the US because of its neighbourhood/grocery store focus, is still experiencing declining income growth as the impact of retailer bankruptcies continues to wash through the sector.

The difference in the two experiences suggests that where the big malls were hit early by the impact of the crisis and the US recession they are now stabilising, while the ripples from the crisis are still continuing to spread throughout Middle America.

The domestic experience of the two property centre groups helps illustrate how benign the economic slowdown has been in this market – between them they represent a very broad exposure to the Australian economy and Australian consumers – and how sharp and sustained the deterioration in the retail climate in the US and UK was throughout the crisis.

The improvement in Westfield’s occupancy rates in the US and UK suggests that, while settings in those economies remain fragile and recessed, they may have bottomed. That would make it easier for Centro to deal with the US portfolio – the acquisition which propelled it into the hands of its bankers – and would start the very aggressive Westfield thinking about expanding at the bottom of the cycle and taking advantage of others'