Investors scour WA retail as extended trading hours looms, but some retailers don’t like Sundays

The introduction of Sunday trading in Western Australia was one of the prompts that triggered Charter Hall's purchase of the Wanneroo Central shopping centre.

The Charter Hall Retail Partnership has announced it has executed a contract to buy the shopping centre which will have an initial 8% yield.

Acting Charter Hall chief executive Scott Dundas saysthere were several reasons for the purchase.

“With a robust forecast population growth of 4.7% in its main trade area, dominant supermarket anchor tenants and the introduction of Sunday trading across Western Australia, Wanneroo Central is expected to contribute stable long term returns and will be a high quality addition to the REIT’s non-discretionary portfolio of shopping centres,” he told the local press.

Sunday retailing is set to start in Western Australia, with the roll-out in metropolitan areas beginning in August. The major supermarkets and department stores such as David Jones, Target, Harvey Norman, IKEA , Coles and Woolworths will be allowed to trade between 11am and 5pm. Smaller operators are free to open 24/7.

The industry appears split about the impact on landlords and tenants.

CBRE senior director of retail Helen Lassam believes deregulation is a win-win for property owners and their tenants.

“Landlords and retailers will immediately benefit from deregulation. More hours gives the public more choice, and I believe it will improve turnover across the board, just as it did in the eastern states. This will immediately flow into higher rents,” says Lassam.

In Western Australia, anchor tenants and increasingly speciality shops pay a small base rent plus a percentage of turnover.

Lassam says deregulation will create a better market to attract large eastern states-based high street operators that have previously been cautious about entering the Perth market.

“Improved turnover and stronger rents makes an attractive a market for investors too,” Lassam says.

However, Perth-based valuer Matt Garmony is not convinced and says that rents may, in fact, come down. In recent years many retail investors that have been exposed to high vacancy rates and financially troubled tenants.

“Sunday trading really does increase the cost of running a business, so I think it’s likely to not be very profitable. Many shops will not bother to open. Currently the IGA supermarkets that trade on Sunday make most of their money on that day. With this deregulation they will have to compete with Coles and Woolworths, which will affect their viability and subsequently bring rents down,” he says.

The deregulation has also put an end to the exclusive Sunday trading hours in the tourist centres of Perth’s CBD, Fremantle, Midland, Armadale and Joondalup at the expense of suburban and regional retails.

CBRE Perth managing director Peter Agostino says that shoppers flock to the Perth CBD every Sunday because there are few other places to go.

“Trade in the Perth CBD will suffer because for more than a dozen years it has thrived on the benefits of seven-day trading. I expect fewer people will go into the city to spend, resulting in falling turnover and less rent,” he warns.

However, the rapidly burgeoning residential community living and being developed in the CBD is expected to eventually prop up the retail sector there.

According to the most recent Savills research, in the Hay Street Mall in the Perth CBD, net rents range from $2,200 to $4,900 per square metre with yields between 7.25% and 8.5%.

In other CBD locations rents range between $650 and $2,500 with yields between 7.5% and 9%.

Major stores in Perth neighbourhood shopping centres pay net rents of between $135 and $155 per square metre while speciality tenants pay rents of between $400 and $750 per square metre. Yield range between 8.25% and 9%.

A research report compiled by CBRE for the fourth quarter of 2011 described the planned move to allow Sunday trading in some Perth suburbs as one of the “obstacles” facing the retail market.

The CBRE report says the market was subdued in 2011 but the outlook is optimistic as economic forecasts and growth prospects remain bright.

However it notes that retail is one of the sectors that has not felt the benefits of the investment spending in the resources industry to the same extent as other property sectors because demand is driven by the domestic side of the economy and dependent on consumer confidence.