Arrested development

Spencer struggle
The Just Group, Cotton On Group and Webster Holdings are just some of the fashion businesses affected by the collapse of three Austexx-owned shopping centre developments.

The most recent Austexx-owned centre to go under is Austexx Spencer in Melbourne’s CBD, trading as Spencer Street Fashion Station. Among the 120 tenants in the centre affected by the administration are Just Group’s Dotti, Portmans and Peter Alexander brands; Webster Holdings’ David Lawrence and Marcs labels; and others including Cotton On, Connor, Country Road, French Connection, Seed and Lorna Jane.

At the time of press, receiver-managers Craig Shepard and Leanne Chesser of firm KordaMentha advised they intend to keep the centre trading until a new buyer for the site is found. It is the same strategy KordaMentha announced it would pursue when Flinders Plaza Shopping Centre, another Austexx development, entered receivership in June. The yet to be built Flinders Plaza is a $200 million, six-level shopping centre development in Townsville.

A third Austexx-owned retail centre, Torquay Central in Victoria, also entered receivership in early June. Fashion tennants affected include Witchery, Tony Bianco, Converse and Jay Jays.

The collapses come on the back of Austexx’s financial difficulties in 2010. The company sold four of its Direct Factory Outlet (DFO) centres and well as the rights to the DFO brand to Colonial First State (CFS) Retail Property Trust at the close of last year after accumulating debts rumoured to be in the vicinity of $1.2 billion. CFS paid a total of $498 million for the assets.

Broader implications
In its just released Research and Forecast Report for the second quarter of 2011, property firm Colliers International predicted that retail collapses and online shopping would have further impacts on the retail property market, primarily on tenancy mix. However Colliers reported the sector was otherwise healthy.

“While in the short-term retail property owners will be impacted by these major retail chains going into administration, the outlook for the traditional shopping centre model remains solid, and the fundamentals of the Australian economy sound,” the report said.

Researchers noted that Australia’s largest retail landlord, Westfield, recently reported continued growth in rents across its portfolio, high occupancy rates and low areers. However, despite recording a 5.2 per cent rental growth in the first quarter of calender 2011, some financial analysts have questioned the performance of its stock. In a circular to clients, Goldman Sachs executive director for real estate investment trust sales Scott Maclean claimed the listed group had underperformed the broader sharemarket by four per cent in the three months ending July 20.

“It is struggling to hold core support levels over the past month or so,” Maclean noted. “The past five years have seen a sharp rise in the occupancy costs borne by retailers - which was probably fine when sales were growing, margins were expanding and everyone was making money. Occupancy costs are simply the rent you pay to the landlord as a percentage of your total revenue.”

With retailers struggling through a combination of sluggish sales, higher costs and higher rents, Maclean questioned the strength of retail developments in a climate where clients were recording sluggish or negative growth. Colliers too acknowledged the power of consumer sentiment and spending on the market, noting that, while other shopping centre owners had alos recorded stronger than expected centre performance, there could be challenges ahead.

“While good news for investors, occupancy costs are an ongoing issue for retailers, with rents increasing faster than sales turnover. If retailer margins weaken and we don’t see a sustained recovery in sales growth, future capacity for rental increases may come under some pressure.”

The recent sale of Gandel’s 50 per cent interest in Northland shopping centre to the Canada Pension Plan Investment Board for $445 million provides some light for the sector, signalling the largest direct property transaction to occur in Australia this year. Colliers noted that demand for prime retail assets remained strong from both domestic and offshore investments, depsite the Australian dollar.

“This is a strong vote of confidence for retail property markets and demonstrates that Australian retail assets are firmly back on the radar of foreign investors. The gap between vendor expectations and market interest is expected to narrow further over the next six to 12 months, resulting in increased transaction activity.”