October 25, 2012
Emporium Melbourne on Lonsdale Street is expected to achieve an 85% leasing rate upon completion in a year's time, said Goldman Sachs.
Leasing expectations for an upcoming retail complex on Lonsdale Street in the Melbourne CBD has been downgraded. Once expected to be fully occupied upon completion, Colonial First State's Emporium Melbourne is likely to be only 85% leased, said Goldman Sachs.
The retail complex is scheduled to be completed in a year's time, and the downgrade in leasing expectations represents a more conservative view of the project on the back of Australia's retail sector woes.
Goldman Sachs Australia senior REIT analyst Simon Wheatley said, "While the Emporium project is in a core CBD location, the vertical retailing format and the limited reported pre-commitment at last update elevate the risk in the current difficult retail environment."
"As such we prefer to take a more conservative approach - we previously assumed the property being fully leased and thereby reaching target yield on cost on completion just over a year away, pre-Christmas 2013."
"We now take the view this will be 85% occupancy, increasing quickly to 95% thereafter."
Wheatley said that should the Emporium be successfully completed in line with targets, it would act as a positive catalyst in the sector.
"Until the outcome is proven, however, it is likely investors will increasingly show wariness around the development completion date," he noted.
Developed at a cost of AUD 1.2 billion by Colonial First State Retail Property Trust, the retail property will offer 46,000 sq m of retail space across 240 shops that will be located between Lonsdale Street and Little Bourke Street.
Emporium Melbourne will replace the old Meyer Lonsdale Street store. It will also be linked with the Meyer Melbourne department store and to David Jones via pedestrian bridges and tunnels.
Among the retailers that have signed on at the upcoming shopping development is UK fashion retailer Topshop, which will occupy 2,600 sq m over three levels. A "new brand to Australia" has also leased four floors for a combined 3,000 sq m of space.
Other confirmed tenants include Salvatore Ferragamo, Sass & Bide, Michael Kors, Scanlon & Theodore and Zimmerman.
"Our estimates still factor expectation of a 6.65% yield on Emporium to deliver the target 6.0% yield on the whole project," said Wheatley.
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