Major shopping centre operators around the country are defying the toughest market conditions since the GFC by spending around $11.5 billion in developments and redevelopments in an effort to maintain market share and increase profitability.
The online retail sector has expanded in size and popularity at an alarming rate, due to the level of convenience offered to customers, as well as the cheaper prices and vaster array of product availability. Research undertaken by BIS Shrapnel suggests that the online sector's market share could grow from 6% to 11% over the next decade, with more than $3 out of every $10 in additional spending to go towards online retailers.
In order to combat this growth, property groups such as Westfield (ASX: WDC) and GPT Group (ASX: GPT) have been focused on divesting in their less profitable assets and expanding or redeveloping their strongest – a strategy that Simon Rooney from Jones Lang LaSalle believes is to avoid losing market share.
Rooney said "these redevelopment projects can drive customer traffic, growth in moving average turnover and potentially, rental income."
According to The Australian Financial Review, projects under construction throughout Australia in the June quarter size up to a total of 507,000 square metres (compared to 356,000 in 2012), whilst a further 68 projects are at some stage of approval. Should these projects receive approval, an additional 793,000 square metres of space could be delivered by 2017.
BIS Shrapnel also suggested that income growth for shopping centres will likely only be 2% annually over the next five years due to current market conditions and changing trends.
Foolish takeaway
Despite the growth of the online sector, Westfield Group presents as one of the most attractive property groups with its heavy focus on increasing shareholder returns and significant growth potential ahead of it. Currently, three out of the top 10 development projects in Australia are being undertaken by the company, including its Tuggerah, Miranda and Mt Gravatt stores.
At $11.37 per share, the company is trading at a 9.4% discount compared to its price in May and offers an impressive 4.3% dividend yield.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
