Retail sector hit by flood levy impact on sales
Sydney Morning Herald
Monday January 31, 2011
THE sale by billionaire John Gandel of his half share in the $900 million Northland shopping centre in Melbourne has been hit with its own tidal wave after brokers issued a downgrade to the retail property sector if the government's flood levy is initiated.The planned impost to raise $1.8 billion for the Queensland floods is forecast to dampen consumer spending and longer-term confidence and delay any sales rebound.This warning also comes on the back of negative comments from retailers such as Woolworths, which are large rent-payers in all major shopping centres across the country.It has occurred at a time when tenants are already raising concerns about their ability to keep paying higher rents in centres that have seen major renovations in the past few years, which includes Northland.The centre is co-owned by the Commonwealth Bank's listed CFS Retail fund, in which Gandel has a 25.64 per cent stake and last year both invested in a $419 million upgrade of the mall in Melbourne's northern suburbs.The head of property research at Goldman Sachs, Simon Wheatley, said that his long-term outlook for retail was to remain overweight but the short term was causing concern."We have had a positive view on retail real estate investment trusts [REITs] going into 2011 and after events this week [weak retail sales data from Woolworths and bearish comments from its chief executive, Michael Luscombe, plus the one-off flood tax levy], we have taken a pause to reconsider this view," Mr Wheatley said. "In short, we see a small negative impact to consumption, a potentially larger impact to consumer confidence, and an associated delay in a retail sales rebound relating to the flood levy."This could defer timing of our rebound in sentiment to retail [through a recovery in retail sales] by two to three months. We still however see that the macro opportunity for a spending rebound is strong and maintain our overweight view to retail REITs."He said the flood levy is projected to raise $1.8 billion which would be about 0.25 per cent of consumption (and about 0.7 per cent of retail sales excluding services)."The levy has the same effect as a 12 basis-point increase in interest rates on our estimates," he said.
© 2011 Sydney Morning Herald