Research and Forecast Report
Accelerating success.
RETAIL Second Half 2018 EXPERTSIN PROPERTY DATA & INSIGHTS
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Accelerating success. CONTENTS
Retail snapshot 4
National overview 5
New Zealand 8
Sydney CBD 10
Melbourne CBD 13
Brisbane CBD & Gold Coast 15
Adelaide CBD 17
Perth CBD 19
Centres 21
Large Format Retail 24
Our experience – Retail 26
Retail | Research & Forecast Report | Second Half 2018 3 RETAIL SNAPSHOT
SEPTEMBER AVERAGE GROSS AVERAGE 2018 FACE RENT MOVEMENT YOY INCENTIVE LOWER YIELD UPPER YIELD AVERAGE YIELD
SYDNEY
CBD $12,253 9.4% 3.90% 5.50% 4.70%
Regional $1,950 14.0% 4.00% 5.50% 4.75%
Sub regional $1,275 17.5% 5.50% 6.85% 6.18%
Neighbourhood $1,000 15.5% 5.50% 7.00% 6.25%
Large Format $492 8.0% 6.00% 7.25% 6.63%
MELBOURNE
CBD $7,375 7.0% 4.10% 5.50% 4.80%
Regional $1,750 10.0% 3.75% 5.50% 4.63%
Sub regional $1,005 16.0% 5.25% 6.85% 6.05%
Neighbourhood $765 15.5% 5.00% 6.75% 5.88%
Large Format $270 12.0% 7.00% 8.00% 7.50%
BRISBANE
CBD $4,175 17.0% 5.25% 6.00% 5.63%
Regional $1,550 15.0% 4.25% 5.75% 5.00%
Sub regional $1,050 25.0% 5.50% 7.00% 6.25%
Neighbourhood $700 25.0% 5.5% 7.00% 6.25%
Large Format $355 15.0% 7.00% 8.00% 7.50%
PERTH
CBD $3,245 13.5% 4.85% 5.50% 5.18%
Regional $995 15.0% 5.50% 6.00% 5.75%
Sub regional $763 15.0% 6.00% 7.00% 6.50%
Neighbourhood $450 20.0% 6.20% 7.50% 6.85%
Large Format $203 12.5% 7.15% 8.00% 7.58%
ADELAIDE
CBD $2,650 15.0% 4.75% 6.00% 5.38%
Regional $1,425 20.0% 5.00% 6.25% 5.63%
Sub regional $675 30.0% 6.00% 8.00% 7.00%
Neighbourhood $510 20.0% 6.50% 8.00% 7.25%
Large Format $238 15.0% 7.25% 8.25% 7.75% NATIONAL OVERVIEW
By Alex Pham Australia’s GDP Growth
Director | Research 6% [email protected] 5%
4% 3.41%
3%
MARKET HIGHLIGHTS 2%
1% The Australian retail market continues to be supported by strong 0% population growth and a solid employment market. -1% 0 1 2 3 4 5 6 7 8 9 8 9 0 1 2 3 4 5 6 7 8 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 ------n n n n n n n n n n n n n n n n n n n n n u u u u u u u u u u u u u u u u u u u u u J J J J J J J J J J J J Rising consumer spending on the back of falling savings and low J J J J J J J J J MoM Growth GDP Growth YoY 30-Year Average unemployment is indicating a positive outlook for wage growth. Source: Colliers International, ABS The rise of localism is emerging as an important influence on Job Vacancies (‘000) and Unemployment Rate consumer preferences and purchasing decisions. 10.0% 250 230 9.0% 210 8.0% 190 Retail market fundamentals 7.0% 170 6.0% 150 130 remained supported 5.0% 110 4.0% The Australian retail property sector has continued to perform 90 3.0% 70 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 8 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 9 well, despite a challenging retail environment globally. There are 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9 9 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 several factors that underpin the resilience of the retail environment Unemployment rate-LHS Job vacancies* in Australia and its uniqueness compared to other international Source: Colliers International, ABS markets. These catalysts include a growing population and strong *Vacancies data not available between Aug-08 and Aug-09 employment conditions in conjunction with sustained household spending. Australia’s population has surpassed 25 million and is employment rose by 30,000 people YoY. Reflecting the strength growing by approximately 1.6 per cent per annum, one of the fastest of the employment market, Australian employment increased rates of growth in the developed world. Over 29 million people will by 29,000 persons in August 2018 and the unemployment rate be calling Australia home over the next decade, which will provide decreased to 5.3 per cent. Not only there are more jobs the quality tremendous support for the retail economy. Off the back of the of employment has also improved with full-time jobs increased strong population growth and improving economic conditions, the by 20,900 in August whilst part-time employment increase by Australian government is delivering an immense infrastructure 8,000 persons. On an annual basis, total employment increased by program worth over $75 billion over the next 10 years. As a result, 303,100 persons over the year to August 2018. This represents a GDP has accelerated by 3.4 per cent over the year to June 2018, growth rate of 2.5 per cent YoY, which was well above the 20- securing the strongest rate of growth since September 2012 and year average of 2.0 per cent per annum. With the unemployment exceeding the Reserve Bank’s expectation of 3.0 per cent. rate forecast to dip below 5.0 per cent and participation rate being maintained at near record high levels, all indicators are pointing Consumer spending is rising on the back of declining household towards a gradual pick up in wage growth over the near term. savings and positive employment outlook. As a result, household final consumption expenditure has been one of the largest Consumer confidence, as measured by the Westpac Melbourne contributors to economic growth over the past few quarters, Institute Index of Consumer Sentiment, has risen by 1.0 per cent increasing by 0.7 percent during the second quarter of 2018 to 101.5 in October from 100.5 in September 2018. Confidence has and contributing 0.4 percentage points to GDP growth. Housing been maintained in positive territory, with the index trailing above construction activity remains strong with investment in new 100, for almost a year since December 2017. Income tax cuts, dwellings jumping 3.6 per cent for the June quarter. The strength of strong economic growth, a solid job market and ongoing recoveries residential and infrastructure building activities has driven revenue in the resource-based states are the primary pillars of support for in the construction industry up by 1.9 percent whilst industry consumer confidence over the past year. In a similar vein, business
Retail | Research & Forecast Report | Second Half 2018 5 confidence has also improved in recent months with the Roy help improve shoppers’ experience but also extend their stay at Morgan Business Confidence rating index rising by 1.2 per cent to the centre and in turn, hopefully, increasing total spending on other 111.5 in September 2018. This is a significant improvement after a products or services. Food retailing and supermarkets also continue decline in the previous month due to political instability in the Liberal to gain footprint across the board. Analysis by Colliers reveals leadership, which has since been resolved. The business confidence that the number of food and beverage operators within Australian index has averaged 116.0 over the year to date, which is the highest shopping centres have increased by almost 28 per cent over the yearly average since 2015. Most businesses have are holding past 10 years. In 2008, only 20 per cent of all shopping centre positive views on the Australian economy and planning to grow their tenancies nationally were food retailers, cafés or restaurants and operations over the next five years. that proportion has increased to 24 per cent in 2018.
The ongoing tourism boom continues to work in favour of The market is also witnessing the rise of innovative retail solutions Australia’s capital cities and particularly the luxury retailing industry. talking up more retail spaces and generating additional income for A record of 9.1 million visitors have arrived in Australia in the year shopping centre owners. One emerging concept is the “click-and- ending August 2018, an increase of 5.5 per cent over the previous collect” locker system that is increasing in popularity. The locker year. Total spending on local goods and services by international delivery system is available 24/7 and can be managed online, travellers increased by 6.0 per cent to $42.3 billion with over half providing a convenient solution for time-conscious and technology- of which derived from Chinese tourists. The depreciation of the savvy consumers. The concept is already being trailed in Australia Australian dollar and increased direct flight routes to Australia are by major retailers and shopping centre owners. Another new trend expected to further boost the inbound tourist number. According to that is taking shape in Australia is co-retailing. This new retail model IBISWorld forecasts, the number of international arrivals is expected allows multiple retailers to trade multiple product lines in the same to grow by an average of 5.1 per cent per annum on over the next store on a flexible basis in prime shopping locations. One example five years, to 11.71 million by 2023. is “My Cube”, which has established four co-retailing stores in Queensland and New South Wales and is looking to roll out more Emerging retail trends stores nationally and in CBD locations. The rise of retail localism Leveraging on new technologies As the retail world continues to evolve and consumer behaviours The rise of new technologies is providing significant opportunities for change, we are also witnessing the rise of localism within the shopping centre operators to capture data on their consumers and Australian retail environment. Originated from a social and economic help improve operational efficiency. Insights into shopper behaviours phenomenon, localism is becoming a major influence on consumer and purchasing patterns will help inform centre owners to better preferences and purchasing decisions in Australia and globally. This design their spaces and optimise tenant mixing. The latest tech means consumers are becoming increasingly attached to the local trends include facial and biometric recognition technology, magic ecosystem and more involved with their neighbouring community. mirrors, smart change rooms, beacon push notifications as well as This is evidenced by the fact that almost 90 per cent of Australians the integration of virtual reality and shopping experiences. Despite prefer to shop regularly at their local stores and the majority are very the strong growth in online retailing, it’s important to recognise much interested in local affairs and community events, according to that about 95 per cent of shopping activity in Australia is still being surveys by Relationships Australia. More than ever, shopping centres done at brick-and-mortar stores. However, availability of instore will have to become more deeply entrenched and connected with information is pivotal in attracting and retaining shoppers as statistics the catchment community they serve. Each community will have from Google shows that 80 per cent of consumers will shop in store distinct needs and requirements, while shopping centre owners are if they know the items they want are available immediately. to critically embrace an intimate understanding of the catchment Advances in building management technologies are also helping population. The rise of localism will also channel increased shopping centre owners to improve efficiency and cut costs. The demand for additional public and community spaces. Furthermore, focus continues to be on reducing energy consumption in shopping placemaking initiatives such as community gardens, youth start-up centres, which is one of the largest cost items for a centre, or co-working spaces or child care facilities are become more through the implementation of new technologies such as building prevalent across the shopping centres in the country. automation controls, solar power generation, natural ventilation and Diversifying tenancy mix LED lighting. Our anecdotal evidences show that the implementation of innovative and high-performance HVAC systems can help reduce Another key retail trend that has been apparent for some time and annual energy costs by 30 to 40 per cent and deliver significant expected to intensify is the increasing prevalence of experiential and uplifts to property values. Additionally, other initiatives such as lifestyle retailing within shopping centres. Gyms, medical centres, ticketless parking system, smart advertising screens, reverse entertainment, childcare, schools and showrooms are performing vending machines and activation of underutilised car parking well and continue to gain popularity. These offerings will not only
6 spaces are being increasingly implemented by owners to generate Retail Sales MAT Growth ancillary income. These changes are all aiming at making shopping 9.0% as a leisure and convenient activity for consumers, which is the 8.0% most important factor driving the retail market going forward. 7.0% 6.0% Undeterred investor demand 5.0% 4.0% Despite some crosswinds in the sector, investor demand for 3.0% Australian retail assets has remained sturdy with demand 2.0% 1.0% stemming from a diversity of buyers including offshore investors, 0.0% 8 9 9 0 8 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 8 0 0 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 ------g g g g g g g g g g g b b b b b b b b b b e e e e e e e e e e u u u u u u u u u u private syndicates, local institutions and listed groups. Total u F F F F F F F F F F A A A A A A A A A A A investment value amounted to $4.5 billion over the first three Total Non-Discretionary Discretionary quarters of 2018, in line with the corresponding figure last year. Source: Colliers International, ABS However, Colliers International anticipates transaction volumes to ramp up over the last quarter of the year with several major Exchange Rate and Tourism portfolio transactions yet to be crystallised into our data. One of 1.20 1.00 the largest portfolio transactions recently was Vicinity Centres’ 0.95 1.10 sale of ten Sub Regional and Neighbourhood shopping centres to 0.90 0.85 1.00 SCA Property Group and one Neighbourhood shopping centre to 0.80 a private investor, for a total consideration of $631.0 million. The 0.90 0.75 0.70 0.80 aggregate sale price reflects a weighted average capitalisation 0.65 0.60 rate of 6.9 per cent. Institutional investors have been the most 0.70 0.55 active purchasers since the beginning of this year accounting for 0.60 0.50 8 9 9 0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 8 0 0 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 ------g g g g g g g g g g g b b b b b b b b b b e e e e e e e e e e over 40 per cent ($1.8 billion) of total transaction value. They are u u u u u u u u u u u F F F F F F F F F F A A A A A A A A A A A followed by private and offshore investors who purchased $1.4 US$ per A$-LHS In/Out Tourism Ratio billion (32 per cent of total) and $680 million (15 per cent) of Source: Colliers International, ABS shopping centres respectively.
Pacific Centres Portfolio, VIC Pacific Werribee & Pacific Epping
Retail | Research & Forecast Report | Second Half 2018 7 Research & Forecast Report NEW ZEALAND Retail | Second Half 2018
By Chris Dibble Director | Research & Communications [email protected]
ANZ-Roy Morgan Consumer Confidence Index MARKET HIGHLIGHTS 145
The reduction in retailer sentiment is not translating into lower 135 activity as retail spending continues to grow. 125
115 x e
A number of major shopping centre developments are d n I 105 underway in Auckland. 95
Wellington and Christchurch’s retail sector provide a relatively 85
stable rental environment, but for differing reasons. 75 9 8 9 0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 8 - 0 - 0 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 r - 0 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 r - 1 p p p p p p p p p p p a a a a a a a a a a e e e e e e e e e e M M M M M M M M M M Confidence down, but sales growth remains S S S S S S S S S S S e Source: ANZ-Roy Morgan, Colliers International Research Retailer confidence has been hampered by consumers signalling they are entering a more reserved period of spending due to Retail Vacancy Rate projections of slower economic growth and a reduction in the 13% rampant residential capital value growth environment experienced over the last few years. However, this cautious sentiment has yet to 11% e t translate into activity, perhaps a result of rising wage growth, low a 9% R
y c unemployment, job security and home loan rates which look set to n a
c 7% a remain low due to accommodative monetary policy employed by our V
l l a
r 5% Reserve Bank. e v O
3% Statistics New Zealand captures the latest positive period of sales activity with growth in total sales volumes and values recorded in 1% 0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 the June 2018 quarter. While continued growth across the majority - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 - 1 n n n n n n n n n c - 1 c - 1 c - 1 c - 1 c - 1 c - 1 c - 1 c - 1 e e e e e e e e J u J u J u J u J u J u J u J u J u of industries can be seen, the food and beverage industries are still D D D D D D D D capturing the lion’s share of retail spend in New Zealand. And, while Auckland Wellington still representing a small, but rising proportion of total retail sales Source: Colliers International Research activity, online retailing continues to influence the bricks and mortar vacancy to 4.5%, up from 3.3% a year ago. This is primarily driven sector in New Zealand as it does globally, especially for those by secondary suburban retail rather than other areas and quality of not incorporating digital retail technology or trying to sell easily retail space. substitutable goods and services. Solid demand for CBD retail space remains, but naturally, prime Leasing opportunities up, but not all are ideal space is best in retail. Those facing the biggest challenges in the Auckland’s overall retail vacancy rate increased to 3.1% in June sector are those located off main pedestrian flows or operating 2018, the highest level of vacancy since June 2011. One of the from stores under ownership with limited appetite to commit capital major areas of movement was recorded in strip retail, with a rise in expenditure to attract consumers.
8 Strong Auckland retail expansion underway the past eight years, with GDP up 23% to NZD 20.7 billion, mean annual earnings up 26% and jobs growth more than doubling since The retail supply pipeline is the largest it has been this cycle 2010, according to data from Infometrics, StatisticsNZ and MBIE, with just under 180,000 sqm of space to be built in the next few respectively. years. Examples of some of the development and expansion activity includes Scentre Group investing $790 million towards According to information from ChristchurchNZ, within the four the redevelopment of Westfield Newmarket. Kiwi Property Group, avenues there is now a working population of 38,500 and more owners of Sylvia Park, is going ahead with a $223 million galleria than 4,300 businesses. With 6,000 residents and a total of 838,000 expansion as well. Precinct Properties’ Commercial Bay retail guest nights, central city foot traffic is reaching an average of 17 centre continues to evolve after the opening of the four-storey pedestrians per minute. flagship H&M store. The remaining 100 or so stores are anticipated There are now more than 300 retailers in the central city including to open by September 2019. More developments are proposed fashion retailers such as H&M, Max, Barkers, Rodd & Gunn, Seed across the city, but timeframes are fluid. The developments range Heritage, Trenery, Witchery, Macpac and more. The opening of new from smaller neighbourhood centres to more major mall additions stores has seen Inner CBD retail sales year-on-year growth of 15% like in Albany. Given the known increases in floor space over a short between 2012 and 2017 increase to 40% between 2017 and 2018, period of time with coinciding completion dates, a continued rise in according to Marketview. The recently opened three-level, NZD vacancy is likely. 50 million development, Hoyts EntX cinema that offers 900 seats Rents are stable, but new records will be set spread across seven screens, with 13 food outlets signed up also lifts the central city vibe. Around 700 shared electric scooters from Auckland CBD prime average net face rents remain unchanged San Francisco-based company Lime have also debuted to keep the at the record rate of $2,775 per sqm. Landlords are expected to city moving. temper their expectation of rent rises over the short term due to lower consumer confidence. However, in contrast, new shopping It is all of these supportive factors, along with more leasing centres under construction and under expansion are pushing new opportunities with a 23% vacancy rate, enabling retailers to commit rental rate benchmarks. to new business plans in central Christchurch. Assisting in this decision is the relatively flat rental environment in the central retail Different story in the capital city precinct, typically ranging between $700 per sqm to $1,250 per sqm. Wellington’s golden mile along Lambton Quay and Willis Street continues to experience steady occupier demand with limited availability in prime spots. Further out from the central city, Shopping Centre mall demand is somewhat back on track after the completion of refurbishment programmes and sales activity has risen modestly. However, overall retail conditions have remained broadly similar in Wellington CBD over recent months. Strip retail vacancy has edged down slightly to 6.8% from 6.9%, albeit this is above the two-decade average of 5.8%. Retail vacancy along Lambton Quay tightened marginally to 4.5%, a decrease of 0.1% from six months ago.
Limited changes in overall leasing activity has meant that gross face CBD prime rents in Wellington increased only slightly, now at $1,318 per sqm, up only 1.8% in the past year. Average regional shopping centre rental growth rates remain relatively flat, like average bulk retail rents which have remained flat for almost two years. Average retail yields remained relatively steady albeit a slight softening in average regional centre yields occurred, now at 8.3%. Christchurch entering a new era Positioning itself as the world’s ‘newest’ city, Christchurch is entering a new era as a compact and modern community centre with solid economic growth as well as consumer confidence that is above the national average. Supporting the positive long-term view Three Kings Café, Auckland held by Christchurch City Council is the growth experienced over Sold on behalf of Fletcher Living
Retail | Research & Forecast Report | Second Half 2018 9 Research & Forecast Report SYDNEY CBD Retail | Second Half 2018
By Alex Pham Director | Research [email protected]
Sydney CBD Yield Spread MARKET HIGHLIGHTS 12% 10% Retail space demand in the CBD is underpinned by strong 8% growth in luxury and premium retailing 6% 4% A new wave of international brands are expected to arrive 2%
over the next 12 months 0% -2% Retail rents have remained elevated -4% 8 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 9 1 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 9 0 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 2 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
S Spread 10Y Bond Sydney
Luxury retailers are driving demand for the Source: Colliers Edge Sydney CBD The Sydney CBD retail market continues to experience solid tenant 3Q18 Sydney CBD Gross Face Rents ($/sqm/pa) activity underpinned by the strong performance of luxury and $18,000 25% $16,450 $16,000 lifestyle retailers. Rising inbound tourism, particularly from Asia, 21.37% $14,000 20% remains the primary driver of growth for luxury retail sales in $12,710 Sydney. Over the year to March 2018, the harbour city has received $12,000 $9,375 15% a record of 4.1 million international tourists, up by 8.4% from last $10,000 $8,000 10% year. Overseas visitors have spent nearly $9.5 billion during the $5,625 $6,000 $4,260 year ended March 2018. Chinese tourists are not only the largest 3.73% $4,000 5% source of inbound tourism to Sydney, but also have the strongest $2,000 4.65% 2.86% 0.00% spending power. Over $3.3 billion worth of merchandise and $0 0% George St Pitt St Pitt St Mall King St CBD services were purchased by travellers from Mainland China. On a Ave Gross Face Rents % growth YoY per capita basis, however, Singaporean tourists were the biggest Source: Colliers Edge spenders, splashing out $222 per night, almost double the overall average spent per tourist. The rapid rise of affluent travellers from Asia with deep pockets has further bolstered premium retail trade for Sydney, which is expected to grow by 6.0-8.0% year on year.
10 Capitalising on the increased spending and rising demand for Food retailers continue to expand high-end products, luxury retailers have continued to expand and Supermarket chains continue to expand their footprints in the upgrade their flagship stores in the Sydney CBD, whilst more CBD with a strong focus on small format convenient based stores. international brands continue to arrive. Louis Vuitton has unveiled Woolworths has opened another Metro store on Pitt Street Mall in the a new temporarily flagship store at 345 George Street, while its basement of Sydney Arcade. This is the forth Woolworth Metro store King & George Street Maison building undergoes a complete facelift within the CBD retail core. In response to Woolworths’ aggressive costing $11 million. ISPT’s retail redevelopment, now known as expansion in the CBD, Coles has also announced plans for a new George Place, also welcomes Nespresso and Georg Jensen’s new range of convenience stores in inner city locations to be rolled concept stores which are expected to open soon. Tiffany & Co is out over the next 12 months. Meanwhile, David Jones is spending still outfitting their newest store at Dexus’ 175 Pitt Street, which $200 million on the renovation of its flagship Elizabeth Street store is also going through a significant makeover with completion due featuring a massive “Food Hall” as the up-market department chain in mid-2019. Over at the Castlereagh Street precinct, Bvlgari has launches its own food venture called David Jones Food. In addition recently revamped its opulent boutique at 64-68 Castlereagh to the food concept to be opened within their traditional department Street. Hermes has expanded its retail footprint by moving to the stores, David Jones is also rolling out a new chain of urban-based Trust Building at 155-159 King Street. Other high-end brands such mini-supermarkets across Australian capital cities. as Cartier, Chanel, Gucci and Valentino are also looking to expand their operations. As such, demand for high quality retail spaces in A new generation retail concept bank branches continue to emerge the Sydney is expected to remain solid over the coming 12 months across the Sydney CBD. The latest entry was Bankwest opening its with Colliers International continuing to assist multiple global luxury new flagship store at the HCF building at 403 George Street. This retailers to enter the tight Sydney CBD market. follows Suncorp’s opening of the Discovery Store end of last year. So When automobiles meet haute couture far, ANZ, Commonwealth Bank, HSBC and NAB have secured their flagship presence in the Sydney CBD. These trends are expected to Off the back of the buoyant activity in the luxury retailing sector, continue over the next 12 months with other local and international the Sydney CBD is about to witness a new breed of luxury retailers banks are on the lookout for prime premises in the city centre. moving to the CBD; i.e. the luxury car brands. Hyundai’s high-end offshoot Genesis has entered to an agreement to open its first Retail rents remain elevated flagship showroom in Australia at 400 George Street. Genesis’ Gross face rents in the CBD have remained elevated over the past entry to the Sydney CBD market follows the success of Tesla at 20 six months on the back of limited availability and sustained demand. Martin Place and mirrors an emerging trend across other global Pitt Street Mall commands the highest level of gross face rents in cities, where luxury car brands are taking up premium locations in the CBD at $10,000 to $22,900 per sqm commensurate with the city centres and shopping malls. Following the successful launch of high levels of foot traffic. The adjacent George Street continues the Mercedes ‘me’ concept store (masquerading as a coffee shop- to achieve strong face rents of $3,000 to $7,500 per sqm despite of course) at the Rialto complex right in the heart of Melbourne’s the ongoing disruptions from light rail construction, with incentives ‘Parisian’ retail precinct on Collins Street, the German automobile ranging from 10% to 13%. The rental gap between George Street manufacturer is opening another boutique showroom in the middle and Pitt Street Mall is expected to narrow once the light rail and of Brisbane’s Golden Triangle at 300 Adelaide Street. With limited pedestrianisation is complete in early 2020. King Street remains availability, Sydney CBD remains the toughest and most expensive the top location for luxury retailers with gross face rents fetching market to break in for car showrooms, but Colliers International between $6,000 and $12,750 per sqm. On the other hand, Pitt believes these trends will continue with other up-market car brands Street remains the most affordable option for retailers in the CBD such as Audi, Lexus, Porsche, Infiniti and Alfa Romeo, that are all retail core. Gross face rents on Pitt street outside of Pitt Street Mall planning to raise their profile by setting up high-end showrooms in range around $2,520 and $6,000 with the tenancy mix favouring city centre locations. food & beverage offerings and entertainment venues catering for CBD office workers and rising number of local residents. Additionally, the area has also started to see some discounted luxury fashion retailers arriving due to the high traffic.
Retail | Research & Forecast Report | Second Half 2018 11 Shifting boundaries rooms – 2021). Furthermore, residential development activity in the Sydney CBD is showing no sign of slowing. Major projects that A massive influx of investment across a multitude of infrastructure, are being delivered include Lendlease’s Darling Square (505 units commercial and residential projects in the Sydney CBD are – 2019), Greenland Centre (479 units - 2020), 196 Pitt Street expected to have positive knock-on effects on the CBD retail (267 units – 2021), Crown Residences (82 units – 2021), 338 market over the coming years. Much like the way the Barangaroo Pitt Street (660 units – 2021), 201-207 Elizabeth St (262 units development has revitalised the retail precinct on Sydney’s western - 2022), 505-523 George Street (588 units – 2024), Yuhu’s One corridor, the completion of the Sydney CBD Light Rail, Wynyard Circular Quay (184 units – 2022), 77 Market Street (108 units – Place and the new retail development at 388 George Street and 2023), amongst others. No.1 Martin Place amongst others, will be a game changer for the retail area along George Street and the surrounds of Wynyard Most importantly, as the City of Sydney embraces more mixed-use Station. Over the medium terms, however, the retail core gravity is and high-density developments, the city centre will be transformed expected to shift north to Circular Quay, where significant volumes into a multi-functional shopping and entertainment destination of commercial and mixed-use developments will be activated in catering to a diverse mix of office workers, urban dwellers and conjunction with the redevelopment of Circular Quay Wharf. New inbound tourists. This continued positive backdrop is driving mixed-use developments will include AMP’s Quay Quarter Precinct the push by Sydney City Council to extend trading hours in the (8,000 sqm of retail space to be delivered in H1 2022), Lendlease’s CBD to cater for the vast numbers of tourists and local residents Circular Quay Tower (2,260 sqm retail- H2 2021), Mirvac’s 55 demanding shopping hours into the evenings throughout the Pitt Street (800sqm retail- 2022+), Poly’s 210-220 George Street Sydney CBD precinct. This, in turn, will have tremendous positive (564sqm retail- 2022) and Yuhu’s 1 Alfred Street (5-star hotel benefits for CBD retailers and landlords. plus luxury residences with ground floor retail). Most importantly, these multi-functional developments are expected to transform the area from an office-based retail precinct to a vibrant seven-days- a-week trading zone further supported by a night time economy. Further ahead, the future developments at the new Martin Place Metro Station and Sydney Central Station (from 2024+) will trigger significant uplifts for the retail precincts in the City Core and the Southern section of the Sydney CBD. Outlook Looking forward, the outlook for the Sydney CBD retail market remains bullish with space demand being supported by a broad mix of tenants including luxury retailers, high-end car showrooms, supermarkets and boutique food and beverage offerings. Infrastructure, commercial and residential developments are expected to activate retail trading conditions and increases in rental values. In addition, the lowering Australian dollar and increase number of high quality hotels in the CBD will continue to make Sydney the most visited city in Australia, especially for affluent travellers from Asia.
A plethora of premium hotel developments in the Sydney CBD that are under construction include the Meriton Suites Sussex Street (175 rooms – Q4 2018), Adina Apartment Hotel (175 rooms – Q4 2018), W Hotel & Apartments (402 rooms – 2020), Crowne Plaza Macarthur Square, GPT NSW Sydney (152 rooms – 2020) and Crown Hotel Resort Sydney (350 Valued on behalf of GPT Funds Management Limited
12 Research & Forecast Report MELBOURNE CBD Retail | Second Half 2018
By Sarah Walker Manager | Research [email protected]
CBD Vacancy MARKET HIGHLIGHTS 12.00%
Retailers preference north and west precincts 10.00% 8.00% Landlords upgrading lobbies and retail to compete with new 6.00% development supply 4.00%
The future Metro Tunnel entices retailers to secure a slice of 2.00%
Swanston Street 0.00% Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18
Leasing market NSW VIC QLD Source: Colliers Edge The second half of 2018, gross face rents have remained at $7,375/sqm where they have been for the last twelve months and Melbourne CBD Retail Yields are forecast to gradually increase to approximately $7,500/sqm 6.00% forecast over the next 12 months. Buying and leasing activity has been 5.00% moving towards the north and west ends of the city. Interest in 4.00% the west has been driven by the upcoming opening of the Ritz Carlton at the West Side Place development in Spencer Street, the 3.00% luxurious St Regis Hotel near Southern Cross Station and the W 2.00% Hotel along Collins Street in the western core. As these precincts 1.00% evolve, typically a five day a week trading area, trade will increase 0.00% 1 1 0 6 8 3 6 7 2 0 5 8 3 7 8 3 4 9 6 5 4 9 1 2 1 1 1 2 1 2 1 1 1 1 1 1 1 1 throughout the week as it transforms from a working zone to a 1 1 1 2 1 1 ------l l - - - - - n n t t n n r p p c c g g r r b b v u u y y c c a a p u u e e e e e e u u a o a J J a a J J J J O O A S F S F D D A A tourist hub. N M M M M The Metro Tunnel project has also been a driver of popularity Source: Colliers Edge amongst retailers towards the north of the CBD epicentre. It was Melbourne CBD Gross Face Rents & Incentives ($/sqm) initially expected that the project would result in sluggish sales $8,000 8.00% and reduced foot traffic however demand and activity along the $7,800 7.00% strip have been high. Despite construction underway, retailers are $7,600 6.00% $7,400 5.00% swarming to secure a slice of Swanston Street as they look ahead $7,200 4.00% to the future. Instead of being turned off the area while it undergoes $7,000 3.00% $6,800 transformation, retailers can see the benefit in being part of the $6,600 2.00% new-look Swanston Street, which will offer even more foot traffic $6,400 1.00% $6,200 0.00% 4 5 6 7 8 3 4 5 6 7 8 3 4 5 6 and public transport connectivity. 7 4 5 6 7 8 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------n n n n n p p p p p p c c c c c r r r r r u u u u u e e e e e e e e e e e a a a a a J J J J J S S S S S S D D D D D M M M M Average incentives are at 7.0 per cent, the same as the beginning of M the year, the lowest level across the CBD retail precincts nationally. Face Rents Gross Incentives It is expected to remain at this level for the next twelve months. Source: Colliers Edge
Retail | Research & Forecast Report | Second Half 2018 13 Swanston Street – Retailers shift preference the Melbourne CBD Retail Term was engaged to create a new to the north of the city ‘Melbourne Laneway’ precinct, bridging the gap between the banks of the Yarra River on Southbank to Freshwater Place. A strong Interest has ramped up in the north of the city due to the amount food and beverage tenancy mix including: Asado (San Telmo team), of high-density apartments, student accommodation, the Victoria Old Man Pho, Infinite Wasabi, Thailander, Poked, Workshop Bros, Market and universities. Scape’s flagship student accommodation Shanghai Market, Dagwood Deli and 30ML creating a diverse and at 393 Swanston Street to be home to over 750 students, was exiting offering for the wider community. secured by three new tenants at the ground floor retail component. ChaTime (32 sqm), Ezymart (71 sqm) and Mrs Zans Kitchen Tightly held investments resulting in record (55sqm) following a strong contest for these spaces towards the demand and compressed yields northern end of Swanston Street. Rents in this area are being The tightly held strip Bourke Street is a globally recognised negotiated circa $6,500/ sqm. Demand is coming from both local, destination which has experienced a rapid series of transactions. national and Asian retailers who are looking to be located in the In the 18 months to Q3 2018, there has been over $500 million northern end in proximity to new student accommodation which is of investment across approximately a dozen transactions, more driving up rents. Increased traffic from the future CBD North Metro than any other corridor in Melbourne’s central business district. station as well as nearby RMIT University and Melbourne Central Most recently,189-191 Bourke Street sold for $13 million fetching shopping centre has given tenants confidence about the future a strong land rate of $65,657/ sqm. Earlier in the year 274-278 performance of this end of the CBD and Swanston Street more Bourke Street transacted above $40 million after over 200 buyer broadly. Strength in this precinct is evident in 242 Swanston Street enquiries from investors. The property had not been offered to the (180sqm) which was leased to Top Tea. The space had over 150 market for over 60 years. Retail rents in the Bourke Street Mall enquiries and was leased within 4 weeks. are achieving more than $10,000 to $12,000 per square metre net There are an estimated 10,000 residential dwellings and more which has translated to strong capital growth and driven underlying than 40 developments that are close to completion or approved for land values within the Mall to more than $200,000 per square development in the northern corridor. This growing population has metre. Yields along the mall have been as sharp between 3.00 to created the opportunity for retailers to trade 24 hours a day, seven 4.00 per cent. There are only 13 freehold properties in the Bourke days a week. Hungry Jacks has repositioned its flagship store from Street Mall, they are highly coveted by specialist investors and major its former Flinders Street location to a new 500 sqm corner space tenants. Record demand has been from Australian investors as well at 260 La Trobe Street, with a rent in excess of $700,000 a year. as offshore including Singapore, Malaysia, China, Hong Kong and latest hotspot Macau. Rising trend of lobby upgrades and improved food & beverage options Over the past 6 months, Melbourne CBD retail yields have compressed only slightly 8 basis points to 4.80 per cent. The recent A current trend for landlords is refurbishing lobbies and upgrading transaction of 362 Little Collins Street achieved a yield below 3 per food and beverage options, to enhance the buildings amenity for its cent, comprising four levels with a ground retail tenancy to flight commercial tenants. An example of this being at 367 Collins Street centre transacting for $14.05 million. The property was purchased via building owner Mirvac who reactivated their ground floor lobby, by a joint venture between Brookfield and ISPT reflecting a yield of lower ground and entrances to engage with tenants in the building 2.80 per cent and $45,032/ sqm of land. Strong population growth in and passing traffic as well as keeping up with the competitiveness Melbourne coupled with continued strong tourism is forecasted to see within the precinct. GPT will overhaul their lobby and create new prime retail yields compress 60 basis points in the next 12 months. retail opportunities at 530 Collins Street. Other commercial buildings with planned major upgrades to their lobbies and foyers include 100 Queen Street, 35 Collins Street and 459 Collins Street as the new wave of office supply is putting pressure on existing stock. These upgrades all have a focus on maximising street activation and improved retail opportunities as well as quality end-of-trip facilities. Institutional landlords are identifying value by investing within their retail assets to secure better office tenants at a higher rent and maximising the return on investment due to currently strong retail conditions in the CBD.
Across the Yarra River, Mirvac have also just completed Southbank’s newest dining precinct with the opening of the
Riverside Quay project. As a result of the recently built and Riverside Quay, Southbank VIC occupied Price Waterhouse Coopers building in Southbank, Leased on behalf of Mirvac
14 Research & Forecast Report BRISBANE CBD & GOLD COAST Retail | Second Half 2018
By Anneke Thompson National Director | Research [email protected]
Retail Sales - QLD (% change MoM) MARKET HIGHLIGHTS 0.7% 0.65% 0.6% Interstate migration reaches record highs 0.5% 0.4% 0.3% Strong migration and tourist arrivals assisting retail trade 0.05% 0.2% 0.04% growth 0.1% 0.0% -0.1% More investor demand than supply for Queensland -0.10% -0.2% -0.17% -0.21% neighbourhood centres -0.3% Food HH Goods Cloth & Foot Dept Store Other Caf & Rest
MoM % Growth QLD National
Source: Colliers International, ABS 3401 Economic recovery continues, migration and Retail Sales - QLD (% change month on pcp) tourism impacting retail demand 6.0% 4.87% The economic recovery in Queensland continues, as strong 5.0% 4.0% interstate migration and improving tourism arrivals on the back of a 2.53% 3.0% weak Australian dollar continue to drive spending growth. Growth in 1.33% 2.0% short term visitor arrivals to Queensland has expanded throughout 0.53% 0.48% 1.0% 2018. On a rolling average measure, Queensland short term visitor 0.0% arrivals in August 2018 were up by 6.7 per cent year on year. -1.0% -1.26% Retail trade results for the state are mixed. The ‘café and restaurant’ -2.0% Food HH Goods Cloth & Foot Dept Store Other Caf & Rest sector was the strongest growth sub-category in the ABS’ August Annual growth % QLD National Retail trade update, increasing trade by 0.65 per cent, although over an annual timeframe, this category has actually been in decline. Source: Colliers International, ABS 3401 This suggests that the café and restaurant industry is in the early Short term visitor arrivals, 12 month rolling average stages of a turnaround, and coming in to the summer and holiday 20.0% months, we expect that trend to continue. 15.0%
Similar to other states, the apparel and department store sectors 10.0% continue to be challenged. The weak Australian dollar is unlikely to e 5.0% n g h a c
help trade in these sectors in the short term, as imported goods are y - 0.0% o - likely to experience price rises over the coming months. y -5.0%
-10.0% 6 0 3 1 4 5 2 7 8 1 1 - 201 1 - 201 5 - 201 6 - 201 7 - 200 9 - 201 2 - 201 8 - 201 0 - 201 3 - 201 4 - 20 1 - 20 1 - 20 1 - 20 1 - 20 1 - 20 1 - 20 1 -2 0 -2 0 g g g g g g g g g g b b b b b b b b b F e F e F e F e F e F e F e F e F e A u A u A u A u A u A u A u A u A u A u NSW VIC QLD SA WA
Source: Colliers International, ABS 3401
Retail | Research & Forecast Report | Second Half 2018 15 Prime grade space in demand from Transactions market international retails The major transaction to complete over the 6 months to Q3 2018 Gross face rents continue to edge down in the Brisbane CBD, as was the sale of Soul Boardwalk. The shopping centre at the base challenged trade conditions continue to impact most non-food of Soul Tower transacted in June 2018 for $90 million on a 7.42 retailing categories that traditionally occupy CBD core markets. On per cent capitalisation rate. A private investor from Macau was the an annual basis, gross face rents in the Brisbane CBD are down by purchaser. Soul Boardwalk is a circa 7,000sqm three level strata 11.2 per cent, to average $4,175 per sqm, although as with all CBD retail complex, located in front of Surfers Paradise beach. retail markets, there is a wide spread between rents. Our rental Also changing hands on the Gold Coast was Miami One range is recorded between $1,600 and $6,750 per sqm. On a more Shopping Centre, which sold in October 2018 for $31.887 million. positive note, vacancy in both the residential and office markets The neighbourhood shopping centre is anchored by a Coles in the Brisbane CBD are trending downwards. This means more supermarket, and includes 29 specialty stores and 2-5 basement consumers both living and working in the CBD, and should have an carparks. The total area for the centre is 4,669sqm. The centre was impact on non-discretionary trading sectors over the longer term. 96 per cent occupied at the time of purchase and transacted on a Prime grade retail space continues to perform better than 6.4 per cent initial yield to the listed SCA Property Group. Private secondary space, and similar to the trend that Sydney and investor Hambros was the vendor. Hambros purchased the asset Melbourne have experienced over the last three years, high end for circa $14 million in 2012. retailers are looking to position themselves in the best space in Demand for neighbourhood centres from all purchaser categories Brisbane’s CBD. continues to be good, and is outstripping supply. Supply of neighbourhood centres for purchased has reduced as fewer developments have completed – a traditional source of supply in the Queensland market, particularly in the new residential subdivisions in Brisbane and the Gold Coast. As developers are finding it harder to lease the specialty components of these centres, fewer developments are getting out of feasibility stage. This means that neighbourhoods that do come up for sale in Queensland are still being met with solid demand from buyers.
Post Office Square, Brisbane QLD Leased on behalf of LaSalle
16 Research & Forecast Report ADELAIDE Retail | Second Half 2018
By Kate Gray Director | Research [email protected]
Retail Sales (% change month on pcp) MARKET HIGHLIGHTS 15.0%
Retail sales continue to improve 10.0%
5.0%
Kaufland to open first store in adelaide 0.0%
-5.0% H&m to open in rundle mall -10.0% Food HH Goods Cloth & Foot Dept Store Other Caf & Rest
YoY % Growth SA National Retail sales improve Source: ABS Retail sales in South Australia have rebound and have seen a SA Retail Sales (% change month on pcp) period of above national average growth over the last 12 months. 7% 6% The annual growth rate in SA was 4.7 per cent in August 2018 5% compared to the national average of 3.68 per cent. South Australia 4% has now overtaken NSW There has been strong growth in Food, 3% 2% Household Goods and Café and Restaurants over the last year. 1% Department stores have started to reverse the trend of Clothing and 0% footwear sales continue to lag with an annual fall of 6.9 percent. -1% -2% 41487 41671 41852 42036 42217 42401 42583 42767 42948 43132 43313 Kaufland and Aldi active SA National retail sales Kaufland have been active in the Adelaide market after their first Source: ABS purchase of the Lecornu site in Forestville last year. There are plans for Prospect, Munno Para and negotiations on several other sites. We understand that a site for Wynn vale has fallen through Rundle Mall Redevelopments and Munno Para is likely to be delayed. The plan is for a 20,000 Rundle Mall has several major redevelopments underway. The first sqm store at Forestville which is due to open in 2019. The entry is the redevelopment of Rundle Mall Plaza which will be the home of Kaufland will add further competition to the Adelaide grocery to H&M which is a full line format store including clothing and H&M market. Kaufland is part of the German based Schwarz Group Home. There is also the redevelopment of Citi Centre, which has which also owns the Lidl supermarket brand. Adelaide has a seen the food court and several retailers close to make way for a new traditionally strong independent grocery market through the IGA Romeos supermarket. The focus will be on fresh food and higher end and Foodland brands, and Costco and Aldi are only relatively new prepared food. H&M is due to open on the 2 November ahead of the entrants to the market. Both Aldi and Costco are much more Christmas trading period. Romeos is expected to open in February established in the East Coast markets. Aldi is also continuing its 2019. Betty Burgers & Concrete Co have taken space on Rundle expansion in Adelaide and expect to have up to 50 stores long term Street and are expected to open before Christmas. This is the first adding further competition to the grocery market. Betty Burgers store in Adelaide with 11 restaurants nation-wide.
Retail | Research & Forecast Report | Second Half 2018 17 Rundle Mall rents come under pressure Large new developments planned Rents along Rundle Mall have fallen by 5.4 percent with the falls There are several large new retail developments in planning stages. being at the top end of the rental range. The Current band for rents Kings Junction located at Salisbury South, which over several on Rundle Mall are in the range of $1,800/sqm to $3,500/sqm. This stages is expected to span 75,000 sqm and is being developed has fallen from $3,800sqm at the top end over the last 12 months. by GIC Australia a local developer. The first stage is in prelease Incentives have remained stable at 20 per cent of a lease. We with major anchor tenants under negotiation now. This project is expected vacancy to increase slightly as space is added through expected to complete in 2020 with construction commencing early the Rundle Plaza redevelopment, and therefore it is likely that rents next year. and incentives will remain steady over the next 12 months. Overall Burnside Village is also investigating the opportunities around a rents across all shopping centres have come under pressure with future extension to extend the centre with entertainment, dining and subregional centres seeing the largest falls of 11.1 percent across more specialty stores. This project is currently in prelease stages the year. with no firm construction timeline. Westfield Marion has been Sales activity earmarked for several years for a major redevelopment, with the most recent announcement being the expansion of the cinema and There was only one sale in Rundle Mall which is 101-109 Rundle restaurant precinct. Mall which is currently occupied by Connor. This sold for $9.2 million to the Duke group in January. Across Adelaide we have Port Canal Shopping centre is undergoing a $30 million seen a 50 percent share of Churchill sell ICAM for $44.5 million. redevelopment which commenced in April this year. This will see Greenacres shopping centre has sold for $10.5 million to PPI Funds the centre expand by 9,163 sqm and includes a new mini major, new for a yield of 7.3 percent. Gawler Park homemaker centre has also specialties, 24-hour gym, medical centre and a child care centre. sold for $25 million to a private investor. This project is due to complete in 2020.
Tea Tree Plaza has also undergone a refurbishment to create a new dining precinct. This opened in late October 2018.
The Grove Shopping Centre, Golden Grove SA Leased on behalf of Challenger
18 Research & Forecast Report PERTH Retail | Second Half 2018
By Quyen Quach Senior Research Analyst | Research [email protected]
Perth Metropolitan Retail Space Supply MARKET HIGHLIGHTS (Excluding Bulky Goods)
180,000 Perth CBD retail conditions expected to improve alongside CBD Forecast 160,000 worker population numbers 140,000
) 120,000 2 m (
‘Food’ the only category that’s showing consistent growth a 100,000 e r A
l 80,000 a t o T 60,000 Strong level of investment activity to improve centre offerings 40,000 and attract higher footfall 20,000
0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Current retail market conditions Source: Colliers Edge The light at the end of the tunnel is starting to appear in the Perth CBD retail scene. Severely impacted by the decline in CBD Perth CBD Average Retail Yields employment, that began in 2012-13, Perth CBD retailers may start 9% to see some improvement in trading conditions over the next 12 8% months alongside the anticipated rise in CBD office occupancy levels. The continued migration of suburban and fringe office 7% tenants into the CBD, in combination with a gradual recovery in 6% the resources sector, is expected to consolidate the CBD retailers’ customer base, and this is emerging just in time. 5%
There has been a significant volume of capital expenditure in some 4% of Perth’s major CBD retail assets. Charter Hall is spending $200 3% 9 8 9 0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 8 0 1 1 1 1 1 1 1 1 1 0 0 1 1 1 1 1 1 1 1 1 ------million repositioning its Raine Square asset which includes a re- - r r r r r r r r r r p p p p p p p p p p p a a a a a a a a a a e e e e e e e e e e e M M M M M M M M M M opening of the Coles supermarket and new retail attractions, such S S S S S S S S S S S as a Rebel Sports and a 12-screen cinema to complement its new Source: Colliers Edge dining precinct. Stage one is complete and opened in September.
ISPT is also well advanced in its $110 million revamp of Forrest Notwithstanding the improving outlook for the CBD retail scene, Chase with stage one expected to begin trading before Christmas general trading conditions across WA remained weak. According 2018 and the remaining three stages to be completed in 2019. to the Australian Bureau of Statistics, nominal seasonally adjusted The $6.5 million upgrade of Plaza Arcade was completed in August retail turnover declined 0.35 per cent year-on-year in June 2018 and re-opened alongside the launch of Perth’s first Uniqlo store, quarter. This was only the second time financial year retail data which now occupies a two-storey tenancy at Plaza Arcade’s Murray returned a negative reading since 1983; the previous time was in Street entrance. the year ending June 2001.
Retail | Research & Forecast Report | Second Half 2018 19 The weak WA residential building sector, in combination with In 2019, 109,145sqm of space is scheduled to be added, with the low established dwelling transactions, has continued to impact vast majority (70,910sqm) in the expansion of regional centres. household goods turnover. Household goods turnover contracted A further 18,610sqm will come from expansion of major regional of 7.67 per cent year-on-year in the June 2018 quarter, an shopping centres. acceleration on the 4.85 per cent contraction recorded in June 2017. Investment Activity
The improved population growth will likely continue to buoy food So far in 2018, 13 major retail investment transactions were retailing, which grew 1.4 per cent year-on-year in June 2018. This executed in Perth, totalling $378 million. This follows 13 transactions increase in population, alongside a gradual economic recovery, valued at $406 million in 2017. With further transactions pending, is likely to flow through to improving conditions in other sectors, it’s likely 2018 will be a stronger year. particularly clothing and soft goods and cafes and restaurants. Neighbourhood centre transactions made up a significant $166 Demand for CBD retail space remained subdued during the year to million of the 2018 total while sub-regional centres accounted for September 2018, as weak real retail turnover conditions persisted. $184 million. The most recent neighbourhood centre sales were In general, CBD mall rents moderated 5.4 per cent over the year Kalamunda Central Shopping Centre ($41.5 million), Flinders Square to September 2018 to average $3,245/sqm for spaces between in Yokine ($39.5 million) and Woolworths Aveley ($26.9 million). The 50sqm and 100sqm. Colliers is anticipating a stabilisation of CBD major sub-regional centre transactions were Warnbro Centre and rents in 2019 as the economy and population growth further Currambine Central, which transacted for $92.9 million and $91.9 improves. million respectively. Tech and the second hand economy The outlook It’s a growing part of the economy and millennials are leading the Consumer and business confidence has lifted alongside the charge. The tech sector is underpinning the rise with applications improving economic outlook, and the downturn in private sector that are increasingly connecting people in a peer-to-peer investment appears to be bottoming. Improvements in commodity environment. A recent report published by Gumtree – Gumtree prices have also led to a resurgence in new exploration and Second Hand Economy Report 2018, estimates the Australian investment activity announcements. Although the recovery in second hand economy is worth $34 billion, with 56 per cent of investment is certainly positive for WA’s economy and the labour Australians having sold a second hand item in the past year. market, we don’t expect activity to bounce back to boom period levels; rather, we expect a gradual improvement in these metrics. Millennials were the biggest spenders averaging $2,721 per person, with Baby Boomers second at $2,091 per person. Gumtree We expect trading conditions for Perth CBD retail to improve as estimates that 88 per cent of those selling second hand items sold the office vacancy declines on-the-back of improving white collar them online and 31 per cent of Australians had preferred to buy employment growth in the CBD and West Perth. In addition, the home décor and furniture second hand. This could be a contributing recovery in economic conditions and overall employment across the factor to lower household goods turnover in WA with some cost Perth metro area will likely assist a revival in retail turnover in WA conscience buyers opting for quality second hand items instead of over the next couple of years. new.
Facebook’s Marketplace app is also rising in popularity since its relaunch in October 2016. Colliers believes Marketplace has been a significant contributor to the growth in the second hand economy by drawing in new participants through Facebook’s large user base. This increase in second hand trading through online sites and social media apps could impact future growth in durable goods retailing. Retail supply update There was 145,785sqm of retail space scheduled to be completed in 2018. To date 116,110sqm has been completed (excluding large format retail). The space added was mostly in major regional, regional and sub-regional shopping centres with 47,110sqm, 24,780sqm and 56,595sqm added respectively. Currently
1,675sqm of retail space is under construction and due to be The Village, Australind WA completed in Q4 2018. Sold on behalf of private syndicator
20 Research & Forecast Report CENTRES Retail | Second Half 2018
By Alex Pham Director | Research [email protected]
Regional Centres - 3Q18 Gross Face Rents ($/sqm/pa) MARKET HIGHLIGHTS $2,500 0.0%
-1.0% $2,000 Regional shopping centres with strong catchment population -2.0% growth continue to perform well. $1,500 -3.0%
The performance of discount department store chains remains $1,000 -4.0% the key influence on sub-regional shopping centres. -5.0% $500 -6.0%
Investor demand for core retail assets has remained particularly $0 -7.0% buoyant over the past six months with over $2.9 billion worth of Sydney Melbourne Brisbane Perth Adelaide shopping centres transacted. Gross Face Rents YoY % Change
Source: Colliers Edge Leasing market Sub regional Centres - 3Q18 Gross face rents ($/sqm/pa) Regional Centres $1,400 0.0% $1,200 Focusing on lifestyle, entertainment and -2.0% $1,000 experience -4.0% $800 -6.0% Despite facing a challenging retail environment, regional shopping $600 centres with strong catchment population growth continue to be -8.0% $400 supported. Retail centres that offer great customer experience $200 -10.0% and convenience continue to attract quality tenants and increased $0 -12.0% footfall. Shopping centre operators have continued to focus on Sydney Melbourne Brisbane Perth Adelaide optimising their tenancy mix with additional allocation towards Gross Face Rents YoY % Change performing retail categories including food retailing, lifestyle, health Source: Colliers Edge and wellness. Whilst the bias towards discretionary sectors is Neighbourhood Centres - 3Q18 Gross face rents ($/sqm/pa) expected to improve visitation, gross face rents have remained $1,200 0.0% accommodative across the board. The average specialty rent in $1,000 -2.0% Sydney is currently sitting at $1,275 per sqm, unchanged from -4.0% $800 the last quarter nonetheless 3.8 per cent lower than our revised -6.0% $600 estimates a year ago. Melbourne average rent measured $1,750 per -8.0% $400 sqm as at September 2018, representing a softening of 2.8 per cent -10.0%
YoY. In Brisbane, gross face rents have remained steady at $1,550 $200 -12.0% per sqm over the past quarter, although over the year rents have $0 -14.0% been adjusted downward by 6.4 per cent. Relatively stable rental Sydney Melbourne Brisbane Perth Adelaide levels were recorded for Adelaide averaging $1,425 per sqm in Gross Face Rents YoY % Change 3Q18, 1.5 per cent lower than 3Q17 whereas Perth’s rents remain at Source: Colliers Edge $955 per sqm, unchanged from last year.
Retail | Research & Forecast Report | Second Half 2018 21 Sub Regional ago. Similar levels of restraint were recorded for Melbourne and Mixed performance of discount department Brisbane, where sub regional rents now sit at $1,005 and $1,050 stores per sqm respectively as at Q3 2018. Adelaide is the most favourable market for sub regional tenants with face rents being reset to the The performance of discount department store chains continues lowest level amongst the capital cities of Australia at $675 per sqm, to be the key influence on sub-regional shopping centres. Mixed 11.2 per cent more affordable than a year ago. Western Australia trading results have been reported for the 2018 financial year, has appeared to find its support with rents changing marginally over with Kmart registering strong sales growth, whilst others continue the past 12 months to hover around $763 per sqm in September to lag. Kmart’s total sales increased by 8.0 per cent over the 2019. financial year 2018, with same store sales increasing by 5.4 per cent. The strong trading results were underpinned by double-digit Neighbourhood Centres growth in transaction volumes as Kmart continues to aggressively Non-discretionary continues to outperform expand and revamp its store network with 10 new stores and 20 Whilst the defensive nature of neighbourhood shopping centres refurbishments during the year. In contrast, BIG W trailed behind has remained, trading performance has varied geographically with with more modest retail sales growth rate of 0.8 per cent over the centres supported by stronger exposure to the non-discretionary year to June 2018 with comparable sales rising by 0.9 per cent sector and favourable demographics faring better than other. due to intense price competition and declining market share. BIG Centres located in metro areas in New South Wales, Victoria and W’s network consolidated to 183 stores by the end of the 2018 Southwest Queensland continue to perform well. Our analysis financial year with the closure of three stores and only one new of shopping centres’ performance reveals that active asset store opened during the year. The Reject Shop also reported soft management is key in driving results with the best performing but improving sales growth of 0.8 per cent over FY2018 (up from centres are those that dominate their local trade areas and heavily -0.7 per cent last year) and flat comparable store sales growth (up engage with the local communities. Supermarket-based and from -1.6 per cent in FY2017). Nevertheless, the company plans service-based shopping centres are also faring better than the to revitalise its market share with 15 new stores expected to be general market. Supported by strong population and employment opened over the next 12 months. growth in Victoria, neighbourhood rents in Melbourne have Sub regional retail rents have reflected the underlying trading remained resilient over the past 12 months averaging $765 per sqm. conditions with landlords continuing to de-escalate some cost Sydney continues experience the strongest demand for retail space pressure off retailers, who are facing an increasingly competitive in Neighbourhood shopping centres nationally with average rents environment. As such, the average gross face rent for Sydney sub hovering at $1,000 per sqm, although some downward adjustments regional centres was brought to a more sustainable level at $1,275 have been made over the past 12 months. Similarly, gross face per sqm as at September 2018, 5.9 per cent softer than a year rents Brisbane, Perth and Adelaide have waned to $700, $450 and $510 respectively.
Marina Square, Wentworth Point NSW Managed on behalf of Billbergia Group
22 Lutwyche City Shopping Centre in Brisbane from Abacus for $53 Investment market million. Sydney and Brisbane sub regional yields are currently Investment activity remains active sitting at 5.50-6.85 per cent and 5.25-7.00 per cent respectively. There was very little trading activity in Adelaide and Perth over the Investor demand for core retail assets has remained particularly past six months with yields remaining stagnant at 6.00-8.00 per buoyant over the past six months with over $2.9 billion worth of cent and 6.20-7.50 per cent respectively. shopping centres being transacted. The largest single transaction was the $720 million sale of a 50 per cent stake in Westfield The asset market for neighbourhood shopping centres has Eastgardens from Tower Terrace Group to the Scentre Group. The been liquid since the beginning of this year as more assets are sale represents an initial yield of 4.25 per cent. Following on this being placed on the market by institutional owners focusing on transaction, the average yields for regional centres in Sydney are restructuring their portfolios. On the other hand, investor demand currently between 4.0 and 5.5 per cent as at September 2018, 50 is still strong and underpinned by a mix of private investors, bps lower than a year ago. In Victoria, sub regional centres are syndicates and owner-operators, which are attracted by the expected to trade at 3.75 and 5.5 per cent with the lower bound added value potential through more active asset management of the yield spread being supported by Chadstone’s current book and repositioning strategies. The largest single neighbourhood valuation. Following the $800 million transaction of half a stake sale over the past six months was Wallsend Shopping Centre in in Indooroopilly Shopping Centre late last year on a 4.92 per Newcastle sold by Stockland to Haben Property Group for $81 cent yield and with Mt Ommaney Centre being valued at 5.75 per million on a 6.6 per cent yield. In addition, the portfolio sale of cent as at July 2018, regional shopping centres in Brisbane are Vicinity to SCA, which contains seven neighbourhood shopping expected to trade at between 4.25 per cent and 5.75 per cent in centres is expected to boost transaction volumes this year. The 3Q18. Perth and Adelaide’s regional yields are between 5.50-6.00 seven neighbourhood assets were transacted on fully-let yields per cent and 5.00-6.25 per cent respectively. between 6.93 and 7.48 per cent. On that note, neighbourhood shopping centres in Metropolitan Sydney are expected to trade Victoria was the most active market for sub regional sales with at 5.5 to 7.0 per cent as at 3Q18, whilst non-metro locations several major assets exchanged over the past six months. The are offering more attractive yields. Similar assets in Melbourne largest sub regional centre sold over this period was Brandon and Brisbane are trading at 5.00-6.75 and 5.50-7.00 per cent Park achieving $135 million on an initial yield of 6.7 per cent. This respectively. Perth and Adelaide are at the higher end of the has brought the average sub regional yield in Melbourne down affordability spectrum with yields ranging between 6.20-7.50 and to sit at between 6.25 and 6.85 per cent as at September 2018. 6.50-8.00 per cent respectively. However, it’s noted that yields In NSW, the latest sub regional transaction was a 50 per cent remain asset and location specific with catchment demographics equity in Ashfield Mall purchased by ISPT from Abacus for $102.3 and trade conditions being key determinants to pricing levels. million. As part of the deal, ISPT also picked up a half stake in
Greenway Plaza and Homemaker Greenway, Wetherill Park NSW Management Limited Managed on behalf of Rayra Properties
Retail | Research & Forecast Report | Second Half 2018 23 Research & Forecast Report LARGE FORMAT RETAIL Retail | Second Half 2018
By Alex Pham Director | Research [email protected]
Large Format Retail - 3Q18 gross face rents ($/sqm/pa) MARKET HIGHLIGHTS $600 3.0%
Market fundamentals are supported by strong population $500 2.5%
growth, solid employment market and resilient household $400 2.0%
goods sales $300 1.5%
Demand for LFR centres has diversified to alternative uses $200 1.0%
such as restaurants, supermarkets, fresh produces, children $100 0.5%
play centres and gyms $0 0.0% Sydney Melbourne Brisbane Perth Adelaide
Positive rental conditions were recorded over the past 12 Gross Face Rents YoY % Change months across most locations Source: Colliers Edge Large Format Retail - 3Q18 yields
Leasing market 8.5%
Market fundamentals remain sound despite 8.0% residential slowdown 7.5% The fundamental drivers of the large format retail industry have 7.0% remained well supported by strong population growth, solid employment market and resilient household goods sales. Despite 6.5% challenges in the residential market, the growth of homeware sales 6.0% has remained strong. Total sales growth of household goods has 5.5% picked up to 2.2 per cent for the year to August 2018 from 1.02 per Sydney Melbourne Brisbane Perth Adelaide cent in July 2018. Our thesis deems that once house prices reach a Source: Colliers Edge more affordable level, home purchase activity will begin to rise. The driver of this growth will come from owner-occupiers, who have migration, essentially boosting immediate demand for household higher propensity to purchase household goods than investors. The products. Furthermore, the rising trend of home improvement proportion of owner-occupiers purchasing homes have increased projects in Australia are expected to provide further support for significantly over the past three years and are expected to continue industry revenue growth. over the coming years as affordability improves. As a proxy, the proportion of home loans to owner occupiers has reached 67 per The homeware and furniture retailing industry continues to perform cent in August 2018, up from 55 in May 2015. In August 2018, the well with the top listed furniture retailers in Australia reporting Australian population surpassed 25 million people. This figure is favourable performances for FY 2018. Harvey Norman reported forecasted to exceed 28 million by June 2027 (Access Economic its Australian sales revenue increased by 2.6 per cent to $5.76 forecast) and translates to an annual growth of 370,000 people billion for FY 2018 from $5.62 billion in FY 2017. Comparable sales every year. Approximately half of this growth is derived from skilled revenue increased 2.2% to $5.72 billion for the financial year.
24 Discount furniture and bedding retailer Amart Furniture is on an Kaufland beefing up impressive growth phase with its revenue growing by 11.3 per cent The German supermarket giant Kaufland is stepping on the gas per annum over the five years through 2017-18 (IBIS World). This for its expansion across Australia. The chain is on track to open strong growth was due to its aggressive expansion over the past its first two megastores in 2018-19 and expected to roll out across few years. Meanwhile, Swedish furniture giant IKEA is planning 32 locations in Australia by 2023. The company has purchased a to open 30 more stores across Australia by 2030 following the 36,000 sqm site in Adelaide and a Bunnings site in Dandenong, opening of its distribution centre in Marsden Park last year. IKEA’s Victoria for $16.4 million. It is still actively looking for sites in Sydney revenue in Australia has been growing by an average annual growth and nationally. The company’s preference is for sites between rate of 17.0 per cent over the five years to August 2018, significantly 17,000 and 30,000 sqm. On their quest, Kaufland requires an onsite outperforming the overall industry (IBIS World). The sustainably car park, which can maintain 400 car spaces. Moreover, Lidl, a strong network expansion by leading homeware and furniture sister brand of Kaufland, is expected to be launched over the next 12 retailers is expected to have positively influenced demand for LFR or 18 months. centres over the coming years. Shifting tenant demand Positive rental growth continues The large format retail sector was the only retail category that Whilst homeware, furniture and bedding industries continue to recorded positive rental conditions over the past 12 months across account for the bulk of demand for LFR centres, the tenancy mix most locations. Rental growth was recorded in Sydney, Brisbane has become more diversified in recent years. Space requirements and Adelaide, with LFR rents increasing 2.4, 2.2 and 1.0 per cent have now stemmed from alternative uses such as restaurants, to $492, $355 and $238 per sqm respectively. No changes were supermarkets, fresh produces, children play centres and gyms. registered for Melbourne, while Perth average rents remained stable Landlords are increasingly adding new dimensions to their at $270 and $203 per sqm respectively. offerings with ‘food & beverage’ and ‘al fresco’ dining options. These possibilities have been paired with =entertainment aimed at an increasedengagement with the local communities and in turn Investment market increasing visitations and securing repeat consumers.. Colliers A total of $456 million worth of LFR centres have transacted over International is also seeing an emerging trend where bulky good the past six months to September 2018. QLD was the most active centres in proximity to population hubs are transforming into market where $194 million or 42.5 per cent of the transaction service-based premises’ - with government services, childcare and value has occurred. It was followed by NSW with $182 million medical centres beginning to take up space due to affordability and worth of sales. The largest LFR transaction over this period was locational advantages. This is further facilitated by ongoing planning Homemaker The Valley at 650 Wickham Street, Fortitude Valley reforms which allow for greater complementary uses of bulky sold for $170 million. Arkadia Capital purchased the property goods premises. from Altis Property on a 7.26 per cent fully leased yield and 6.76 per cent passing yield. Another asset sold by Altis Property was Greenway Plaza & Homemaker Greenway in Wetherill Park, which was the largest asset being sold in NSW over past six months. It was purchased for $112.4 million on a 7.57 per cent fully lease yield (6.94 per cent passing) by Aventus Property Group. LFR assets in in inner locations of Sydney are expected to trade at 6.00-7.25 per cent as at September 2018, with no significant movement occurring over the past 12 months. Capitalisation rates have also remained relatively stable across the other capital cities of Melbourne (7.0-8.0 per cent), Brisbane (7.0-8.0 per cent) and Adelaide (7.15-8.15 per cent) over 3Q18.
Crossroads Homemaker Centre, Casula NSW Leased on behalf of AMP
Retail | Research & Forecast Report | Second Half 2018 25 OUR EXPERIENCE RETAIL
LEASED 877 tenancies covering more than 283,600 square metres
580 George Street, 242 Swanston Street, 7 Clunies Ross Court, Sydney NSW Melbourne VIC QLD 207.6m² 180m² 457m² On behalf of GPT Funds On behalf of On behalf of Industria Reit Management Pty Ltd Napa Management
SOLD 127 assets totalling over $10 billion value
Pacific Centres Portfolio, Gateway Plaza Leopold, Kawana Shoppingworld, QLD VIC Leopold, VIC (50% interest) $1 billion approx. (50% interest) $117 million $215 million Pacific Werribee & Pacific On behalf of our valued client Sold on behlaf of our valued Epping Vicinity Centres client Mirvac Group
MANAGED 314 assets totalling over 1,410,000 square meters
Belmont Village Gawler Homemarkers Centre, Chermside Market Place Shopping Centre Evanston 9,092m² 14,034m² 13,063m² On behalf of Woolworths On behalf of Private Client On behalf of Private Client
VALUED 90 assets with a value in excess of $38.3 billion in value
Garden City Shopping Centre Westfield Marion, Indooroopilly Shopping Centre & Ancillary Properties, Oaklands Park, SA & Ancillary Properties, Booragoon, WA 136,975.36m² Indooroopilly, QLD 72,849.90m² On behalf of Lendlease 116,108m² On behalf of AMP Capital On behalf of AXA Investment Investors Limited Managers – Real Assets
Note: figures calculated over a 12 month period from 1 May 2017 to 1 May 2018 * Sales of assets since 2011 How else can we help you? Speak to one of our property experts today. Accelerating success. [email protected] OUR EXPERIENCE RETAIL AUSTRALIA & NEW ZEALAND IN THE LAST 12 MONTHS
877 tenancies covering more than 283,600 square metres
Marina Square, 195 Exhibition Street, 211-215 Rundle Street, NSW Melbourne VIC Adelaide 7,669m² approx. 110m² 700m² On behalf of Billbergia Group On behalf of DCF On behalf of Bacasetas Family Developing Group
127 assets totalling over $10 billion value
Woolworths Nelson Bay & Coles Alderley, Thornleigh Marketplace, Woolworths Lisarow Portfolio Alderley QLD Thornleigh, NSW $45.7 million $30.2 million $43.1 million On behalf of our valued client On behalf of our valued client On behalf of our valued client Woolworths Group Ltd Coles Group Property Charter Hall Development Ltd
314 assets totalling over 1,410,000 square meters
Thornleigh Marketplace Mordialloc Plaza Athelstone Shopping Centre 7,063m² 4,526m² 4,563m² On behalf of Holdmark Pty ltd On behalf of Fabcot Pty Ltd On behalf of Private Client
90 assets with a value in excess of $38.3 billion in value
Chirnside Park Shopping Macarthur Square, Warringah Mall Shopping Centre, 239-241 Maroondah GPT, NSW Centre, Brookvale, NSW Highway, Chirnside Park 131,346m² 4,701m² -m² On behalf of AMP Capital On behalf of AMP Capital On behalf of GPT Funds Investors Limited Investors Limited Management Ltd
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