Research and Forecast Report

Accelerating success.

RETAIL First Half 2018 EXPERTSIN PROPERTY DATA & INSIGHTS

Colliers Edge is a subscription service developed by our in-house property research specialists, drawing on the expertise of our national network of operators.

DEEPER INSIGHTS LIMITLESS SUPPORT FAIRER PRICING Largest data set Analyst not operators Tailored to your needs on market today

Want better insights, faster? Talk to a Colliers Edge expert today

Anneke Thompson National Director | Research +61 412 581 647 [email protected] colliers.com.au/colliersedge

Accelerating success. CONTENTS

Retail snapshot 4

National overview 5

New Zealand 8

Sydney CBD 10

Melbourne CBD 14

Brisbane CBD & Gold Coast 16

Adelaide CBD 18

Perth CBD 20

Centres 22

Large Format Retail 26

Our experience – Retail 28

Retail | Research & Forecast Report | First Half 2018 3 RETAIL SNAPSHOT

AVERAGE GROSS AVERAGE MARCH 2018 FACE RENT MOVEMENT YOY INCENTIVE AVERAGE YIELD MOVEMENT YOY

SYDNEY

CBD $12,253 9.4% 4.70%

Regional $1,994 14.0% 4.88%

Sub regional $1,325 15.0% 6.13%

Neighbourhood $1,050 15.0% 6.13%

Large Format $492 7.5% 6.50%

MELBOURNE

CBD $7,375 5.5% 4.88%

Regional $1,800 7.0% 4.63%

Sub regional $1,060 15.0% 6.0%

Neighbourhood $765 15.0% 6.75%

Large Format $270 13.0% 7.5%

BRISBANE

CBD $4,250 15.0% 5.63%

Regional $1,600 14.0% 5.0%

Sub regional $1,108 25.0% 6.13%

Neighbourhood $750 25.0% 6.25%

Large Format $355 15.0% 7.5%

PERTH

CBD $3,388 13.5% 5.18%

Regional $995 17.0% 5.75%

Sub regional $778 15.0% 6.5%

Neighbourhood $468 19.3% 6.78%

Large Format $203 10.0% 7.58%

ADELAIDE

CBD $2,800 15.0% 5.45%

Regional $1,494 17.5% 5.63%

Sub regional $745 30.0% 7.0%

Neighbourhood $520 22.5% 7.25%

Large Format $245 15.0% 7.75% NATIONAL OVERVIEW

By Kate Gray Director | Research Wages vs Labour [email protected] 5.0 4.0

4.5 4.5 5.0 4.0 5.5 MARKET HIGHLIGHTS 3.5 6.0 3.0 6.5 7.0 2.5 Business confidence at an all-time high 7.5 2.0 8.0 1.5 8.5 1 1 7 7 3 9 5 8 6 3 4 2 9 5 6 4 2 0 0 1 1 1 1 1 1 1 0 1 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9 0 0 0 0 0 0 0 0 0 2 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Online retail continues to perform strongly 2 Wages (% growth YoY) (s.a) Unemployment rate (rhs inv)

Source: ABS Investment market remains strong, particularly in large format retail and neighbourhood assets Employment change - Total (‘000)

70

60

50

Retail market drivers 40

30 The retail property sector in Australia has continued to perform well 20 which is evident in strong investment volumes and development 10 pipeline. This has been underpinned by above OECD average 0 population growth (1.6 percent annually) particularly in the eastern states and which has also resulted in increased density and Source: ABS therefore catchments of some established centres. There is also continued growth in retail sales data, and strong growth in job Interstate Migration (rolling 12 month) availability which is starting to flow through to lower unemployment 25,000 20,000

rate in most states. 15,000

10,000

Strong population growth has led to increased density within our 5,000 cities. This is particularly the case for Sydney and Melbourne, 0 -5,000

where population growth has been concentrated. This increase in -10,000 density has resulted in some developers looking at developments -15,000 -20,000 which have a combination of residential, retail and office to -25,000

-30,000 maximise site value. This has resulted in a stronger development 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

pipeline over the next two years, with many developers focusing NSW VIC QLD SA WA

on the growth states of Victoria and New South Wales. Examples Source: ABS such as Chadstone adding a MGallery Sofitel is a good example of a development diversifying income and creating a mixed use ASIC - Insolvency cases per quarter environment. 3,500 240 220 Consumer sentiment remains positive, albeit slightly lower than in 3,000 200 180 previous surveys. The commentary from Westpac suggests that this 2,500 160 was due to volatility in equity markets and widely reported global 2,000 140 instability. Business confidence survey results, however, remain 120 1,500 100 7 5 6 4 7 7 3 5 6 4 5 6 strong and continues to grow, with the highest level recorded since 4 1 1 1 1 1 1 1 1 1 1 1 1 1 ------y y y y p n p p p p n n n a a a a e a e e e e a a the index launched in 1997. The sectors which saw the strongest a J J J J S S S S S M M M M results in business confidence were construction, mining, finance Total Retail trade (RHS) Source: ASIC

Retail | Research & Forecast Report | First Half 2018 5 and property services. The retail sector has underperformed compared to other sectors, with this sector having the weakest Retail spending and result, but remained in positive territory. Most of the listed retail online retail sector has reported improved retail sales across all categories in the March quarter, although department store sales growth Retail spending has continued to grow, with the March retail sales was still negative, but the decline in this category slowed. March results showing national year on year growth of just over 3 per quarter sales were also assisted by Easter in the March rather cent. This is still below the 10-year average of 3.73 per cent. than the June quarter. A key theme from most listed sector As we discussed at length in our last report there has been a retail quarterly reporting is to improve store productivity, which move in consumer spending patterns over the last 10 years. This has trended downwards. This is likely to result to close scrutiny has resulted in a shift away from discretionary sectors such as on current store networks for some retailers with discount department stores, apparel and household goods, towards food department stores and department stores leading the way. The categories. There has also been the rise in café and restaurant drive to improve store productivity is likely to limit space uptake spending which has experienced the largest increase in demand. in some sectors and is leading to owners and developers to Online retail has continued to grow in importance in the Australian investigate other sources of income. Technology is likely to be a market, however we have not reached the same level of key driver of improved productivity with many retailers looking to penetration that is being felt in some other markets, including the use their store network to grow online business through either US and UK. In the UK, around 18 per cent of total retail sales are click and collect options or faster delivery for online sales. This online with an astonishing 25 per cent of fashion sales being from is a particular focus for the major grocery retailers with click and online sources. Both the UK and US have traditionally had a strong collect options reportedly growth three times faster than delivery catalogue mail order culture, so the jump to online retail was a sales. much easier transition when compared to the bricks & mortar to There has also been a fall in the total number of insolvencies in experience we have traditionally had in Australia.. the last half of 2017, according ASIC data. Despite continuing The data suggests that the online sector is being driven by negative media attention, the retail sector has seen a fall in multi-channel retailers which integrate their online and in-store insolvencies to the lowest level recorded in this data set, which experience. This is where there is continued growth, with retailers commenced in 2013. The share that retail insolvencies account for integrating their store network and their online businesses so has also fallen dramatically.

Northpoint, 100 Miller Street, North Sydney NSW Retail Leasing on behalf of Cromwell

6 customers can interact across both channels. Globally we are Index of Business Conditions seeing more integration of the bricks and mortar stores and 25 online with Walmart recently purchasing Flipkart, India’s leading 20 e-commerce retailer. There is a movement away from just the 15 pure play online retailers and we have seen examples of pure 10 play retailers overseas starting to establish a store network. 5 With Amazon purchasing Whole Foods for $13.4 billion last year, 0 their expansion in book and convenience stores, and Aldi mini- -5 stores popping up inside Kohl department stores, both the Whole -10 Foods and Flipkart acquisitions reinforce that consumers are still Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 wanting to have the option of going in store and that a seamless Source: ABS multichannel approach is the best way to continue to grow market share. Online Retail Sales (% growth rolling 12 month)

14% 12% Changing patterns in 10% 8% spending 6% 4% 2% The way Australian shoppers choose to spend their money 0% has been gradually evolving, and these changing patterns of -2% -4% spending are starting to show in the composition of retailers in retail shopping centres and strips. Both the department store HH Goods AU Total and some of the apparel sectors have seen a sustained period Source: ABS of underperformance in turnover which in turn has resulted in an assessment of the performance of current store networks. Non-Disc vs Disc (% change rolling 12 month)

In some cases, this has resulted in store closures. Although 5.5% this can be considered as a risk, in many cases this provides 5.0% 4.5% an opportunity to reposition an asset or even consider different 4.0% avenues of income from other retail categories or even property 3.5% sectors. 3.0% 2.5% 2.0% 1.5% 7 7 7 3 3 3 7 5 6 5 5 6 4 8 6 4 4 3 5 6 4 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------v y b v y b g v v y b y v b b y b g g g

Occupancy and rental g a a a a a o e o e u o o e o e e e u u u u F F F F F F N N A N N N A A A M A M M M M growth listed sector Non-discretionary Discretionary

Source: ABS Although occupancy has remained high in most centres, in the listed sector we have started to see some moderation in rental Retail Sales by State (YoY) growth, with the re-letting spreads falling 1.26 per cent, down 7.00% from 2.11 percent in pcp terms An analysis of turnover data 6.00% indicates supermarkets are continuing to see good growth, but 5.00% specialty retailing results have remained mixed with some sectors 4.00% 3.00% seeing good growth and others seeing declining sales. Department 2.00% stores and discount department stores continue to underperform 1.00% generally, with mini majors tending more towards growth. This 0.00% NSW VIC QLD SA WA data suggests that the leasing market will continue to moderate. -1.00%

Retail Sales by State (YoY) YoY % Growth Retail Sales by State (YoY) National Av

Retail Sales by State (YoY) 10Y Ave

Source: Company Reporting

Retail | Research & Forecast Report | First Half 2018 7 Research & Forecast Report NEW ZEALAND Retail | First Half 2018

By Leo Lee New Zealand has grown considerably, supported by the booming Manager | Research & Consulting tourism market. International visitor arrivals it a new high of 3.82 [email protected] million for the year of March 2018, up eight per cent compared to a year ago.

MARKET HIGHLIGHTS Major Auckland and retail developments gets The demise of some well-known retailers in 2017 highlights the green light the competitive nature of the retail market and the growing Overall CBD strip retail vacancy in Auckland remains tight, threat of e-commerce to bricks and mortar stores. reducing to 3.5 per cent in December 2018, down 0.3 per cent from a year ago. The vacant space is largely made up of small The New Zealand tourism sector shows no sign of slowing shops, except for the ex-Topshop space on Queen Street which down. In particular, food and beverage retailers continue to has subsequently been leased to MECCA. reap the benefits. Auckland CBD prime average net face rents remain unchanged at $2,775/sqm, compared to a year ago. Landlords are expected A number of major shopping centre developments are to temper their expectation of rent rises over the short term, underway in Auckland. especially in areas with lower foot traffic.

Major shopping mall owners continue to invest in redevelopment of key assets. Scentre Group is investing $790 million in a Mixed views on consumer confidence redevelopment of Westfield Newmarket, due for completion in New Zealand consumer confidence dropped 7.5 points from 128.0 Q4 2019. The new complex will add an extra 81,500 sqm of retail to 120.5 according to the ANZ-Roy Morgan survey in April 2018. space and welcome back Farmers and Countdown alongside 200+ Consumers’ current and future perceptions have dipped, the new specialty stores, most notably, Event Cinemas and Auckland’s latter falling marginally below the average from previous years. first David Jones. Consumers’ perception of the economic outlook for the year ahead Kiwi Property Group, owners of Sylvia Park are going ahead with fell 12 points, back to +13 per cent. a $223 million Galleria expansion. Farmers have been secured as Mirroring this downward trend, ANZ Business Confidence Index one of the anchor tenants, leasing two levels totalling 8,100 sqm, has turned negative, falling to a net 20 per cent pessimistic about of the 18,000 sqm expansion. the year ahead in March 2018, a one per cent point drop from one month ago. Business confidence in the retail and agriculture Wellington’s prime retail hotspots sectors dropped significantly while manufacturing and services remain tight edged higher. Retail vacancy in Wellington has declined by 1.9 per cent to 6.9 per cent in December 2017 compared to a year ago. In the latest The retail trade survey for December 2017 continued to show vacancy results, six out of the seven retail precincts declined. growth across all retail industries apart from recreational goods, Retail vacancy along Lambton Quay increased 1.3 per cent to 4.6 compared to a year ago. The biggest contributors included non- per cent but remains low. MECCA has since secured 484 sqm of store and commission-based retailing (up 16.6 per cent), liquor ground floor retail at 256 Lambton Quay, which is the last major (up 15.3 per cent), specialised food (up 12.0 per cent), and food tenancy along the ‘Golden Mile’. and beverage (up 10.7 per cent). Food and beverage spending in

8 Overall CBD prime gross rents increased from $1,291/sqm in March ANZ-Roy Morgan Consumer Confidence Index

2017 to $1,309/sqm in March 2018. Retailers have been patient in 145 waiting for the right space to become available. This is likely to keep 135 prime rents static over the short term. Non-core locations enjoyed 125 modest rental growth, as refurbishments reduced the total stock 115 x e d

available in some precincts. n I 105

A lack of available assets to purchase has kept investment activity 95 low in Wellington over 2017 and commercial retail property sales 85 reached $117.6 million in 2017, a 31 per cent drop from 2016. 75 1 1 1 7 7 9 3 8 3 2 5 9 8 2 6 4 6 6 8 9 4 5 4 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 - - 0 - 0 0 ------l - - - - - t l c t b r r c v g p b n p Adelaide-based Angaet Group has further added to their retail u v g c u n c a r e a r a y a y o e a n e u e a r J o a n u J O F O D e A p J F A p J M S D e M N A u S M M J J N M A u holdings purchasing Porirua’s North City Shopping Centre from Kiwi Property Group for $100 million in April 2018. North City comprises Source: ANZ-Roy Morgan, Colliers International Research of over 25,000 sqm of retail space across three levels and is anchored by Kmart, Farmers and a Reading Cinemas. The sale is Retail Vacancy Rate 13% due to settle in Q3 2018. Auckland Wellington

11% Slow and steady wins the race 9% e

Consumer spending in Canterbury remained positive throughout a t R

y

c 7%

2017. Canterbury retail sales value grew by 1.5 per cent in a n

a c V December 2017, comparative to the previous quarter. Demand from 5% retail occupiers remains resilient and has kept retail rents stable. 3% The completion of significant retail developments over the past 12 months in the CBD has helped draw more foot traffic and activity. 1% 1 1 7 7 9 3 8 5 6 3 9 4 2 5 6 4 2 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 - 0 ------c n c c c c c c n c n n n n n n c c n u u u u u u u u u J D e J J D e J J J J D e D e D e J D e D e D e J D e The second stage of Christchurch’s Merivale Mall is underway. AMP D e

Capital began its $10 million development and refurbishment of Source: Colliers International Research Merivale Mall in May 2017 and the construction period is expected to last 18 months. Upon completion, Merivale Mall will boast upgraded amenities and shared space and in addition, a facelift across the 40 stores.

Queen’s Rise Dining Precinct 225 Queen Street, Auckland NZ Retail leasing on behalf of Special Situations Assets Limited

Retail | Research & Forecast Report | First Half 2018 9 Research & Forecast Report SYDNEY CBD Retail | First Half 2018

By Kristina Mastrullo Looking through to 2022 – the projected peak of Sydney CBD’s Associate Director | Research office supply pipeline - it is anticipated the city will welcome an [email protected] additional 30,000 white-collar workers. This includes projects such as Quay Quarter Sydney, Circular Quay Tower, Wynyard MARKET HIGHLIGHTS Place, 60 Martin Place and 210-220 George Street, most of which comprise significant retail components.

Demand profile of the CBD consumer is evolving As the city continues to increase in density, its evolving ‘worker composition’ requires a refined and well-curated retail offering. Family Entertainment Precincts growing The Tech sector harnessed by co-working groups, are both experiencing significant growth and, in turn, changing the CBD consumer dynamics. The CBD consumer is a visitor, resident or While current retail development is concentrated in the Core, worker expecting four things when shopping in the Sydney CBD: the next wave is expected to move further south 1. Experience 2. Convenience Demand profile of the ‘CBD Consumer’ 3. Variety While the focus within the Sydney CBD has been on office and 4. Sophistication residential development, this is set to have a direct and significant impact on retail offering in the city. Having been neglected for It’s no surprise people are increasingly time-poor and as a result, some time, once complete, the Circular Quay area will mark a final well-planned lobby retail and retail immediately surrounding piece in an all-encompassing CBD retail overhaul. commercial/residential buildings is crucial. As an example, Barangaroo has successfully created the ‘three-minute worker’

Chester Square Shopping Centre, Chester Hill NSW Sold on behalf of a local private investor

10 Westfield Chatswood, Chatswood NSW Valued on behalf of Scentre Group environment. With an estimated 25,000 workers and residents, With development concentrated within the CBD’s Core (bounded this model ensures every facility needed is found at their by Macquarie, York, King and Alfred Streets), we believe Family fingertips. There is now more than 80 new retail facilities such Entertainment retail catering to workers and residents alike will as cafes, restaurants and services including a medical centre, evolve here and further north, leaking into The Rocks where we’re optometrist, dentist, pharmacy, hairdresser, newsagency, banks, seeing investment in a typically tourist-driven precinct. gyms, childcare centre, dry cleaner, homewares and a department store. The success of the ‘Streets of Barangaroo’ has encouraged Interestingly, Myer has recently introduced the concept of family developers to focus on their retail components with the hopes of entertainment into one of their Victorian department stores, which emulating this success. is their first step into the Family Entertainment market and a driec into experiential retailing. This trend is certain to permeate throughout the balance of the CBD as Quay Quarter Sydney (due for completion in 2022) is The Rocks renewal promising 8,000sqm of retail space, comprising 3,000sqm of boutique shops and dining, and everyday amenities such as a The Campbell Stores will imminently revamp The Rocks, supermarket, dry cleaner, pharmacy and a wide range of health, scheduled for completion in mid-2018. The heritage well-being and lifestyle retail. redevelopment will be adding a further 12 restaurants, cafes and bars covering 50 square metres, featuring panoramic views of The rise of family entertainment precincts the Harbour Bridge and Sydney Opera House. Once complete, the Rocks will not only attract visitors, but also draw workers from the Funlab will be opening their flagship store in May under the CBD’s core. iconic Coca Cola sign in Kings Cross. Funlab is responsible for entertainment spaces such as Strike Bowling, Holey Moley and Future enhancements for The Rocks also include Golden Sky Zone and are expecting to add another facility within the CBD Age’s luxury residential project, The Harrington Collection with fringe in the future. Additionally, new entrants to the market are construction commencing soon. The Harrington Collection expected to expand our existing entertainment footprint as Village will comprise a redeveloped retail precinct with a new plaza, Roadshow, Rec Room, E Sports, IP2 and ‘Ripley’s Believe It Or shops, and restaurants, as well as a communal rooftop space for Not’ search for CBD space. residents.

Retail | Research & Forecast Report | First Half 2018 11 Lisarow Plaza, Lisarow NSW Sold on behalf of local private investor

What about luxe? a likely mix of apartments and hotel, while a concept DA of 700 George Street for hotel, residential and commercial tenancies Retail enquiry remains strong for luxury brands, with Kering Group was also submitted to Council. Despite the current development still looking for CBD space for their basket of brands, particularly pipeline being concentrated in the northern end of the CBD, we Alexander McQueen and Balenciaga. Sydney’s Luxe Corridor - expect the direction of development to start moving further south. located along Castlereagh, King and Market Streets - has matured A further encouragement to this movement is the planning of the into a destination for visitors, shoppers and workers where luxury Over Station Development on Pitt Street. brands continue to cluster, attracting other retailers to take up residence nearby such as food, apparel and active wear. The development of Australian Technology Park (ATP) in Redfern is expected to host an estimated 10,000 Commonwealth Bank The next wave of retail regeneration employees upon its completion in 2020. Coupled with Mirvac’s As we hotly anticipate the transformation of Circular Quay and recently reported unsolicited (and unsuccessful) proposal for The Rocks - our largest hosts of new retail supply - the Southern Google’s New HQ encompassing Redfern and Macdonaldtown precinct, fast becoming ‘Sydney’s Mixed-Use Precinct’, is one Train Stations speaks volumes of the area’s popularity. With to watch as sites continue to attract mixed-use redevelopment the CBD’s border looking to extend further south, the infill area projects. 630-634 George Street was sold off market to between Central Station and the new development at ATP is Singaporean investors who will reportedly redevelop this site into expected to see an influx of new retail over the long term.

12 The next wave of retail regeneration

Sydney CBD Map George Street Pedestrianisation

Pitt Street Metro (North)

Pitt Street Metro (South)

Sydney Light Rail

Sydney’s Mixed-Use Precinct (Southern CBD)

Central Station Masterplan

Redfern Station

Australian Technology Park

Waterloo Metro

Macdonaldtown Station

Source: Colliers International

Retail | Research & Forecast Report | First Half 2018 13 Research & Forecast Report MELBOURNE CBD Retail | First Half 2018

By Kate Gray Collins Street – The CBDs upmarket Director | Research shopping strip for luxury groups [email protected] The focus for landlords is securing high profile tenants for prime locations which offer better growth opportunities in the current MARKET HIGHLIGHTS retail climate. This is most prevalent at the top end of Collins Street with the upgrades at 161 Collins Street with new retail Growth in ground floor retail market spaces to be added to the ground floor. Pembroke Real Estates T&G Building has already secured European luxury brands Global retail flagships continue to flock to Collins Street Bottega Veneta and Versace for this building. Next to Gucci, this will be Versace’s first stand-alone Australian store.

Landlords are upgrading their assets to incorporate new A flurry of development activity in Melbourne’s CBD, particularly retailers and services. with ground floor retail opportunities, has seen the Food and Beverage sector trading well. The highest portion of deals in the CBD market is within this sector. A good example of the evolving Leasing market retail demand profile in the CBD is the landmark corner retail In the first half of 2018, gross face rents remained steady at building on the corner of Bourke and McKillop Street, which is $7,375/sqm, rising 1.7 per cent in the twelve months to March currently available for lease with plans to incorporate a restaurant. 2018. Face rents vary from precinct to precinct and are highly This building previously housed Kosminsky’s jewellers. dependable on the service offering. Tenant demand is spilling Retail space on Collins Street is tightly held with limited vacancy, westward down Bourke Street and Collins Street, resulting in the and the demand for space from international designer retailers Western Core of the CBD gaining traction as operators recognise continues to rise. There has been a high volume of deals along the trading precinct in that area. Several building refurbishments, the east end of the CBD with luxury groups looking to set up including at 360 Collins Street, 367 Collins Street and Rialto their flagship stores in this precinct. These retailers see value on have created opportunity for new retail offerings to expand along operating on Collins Street spine from a branding point of view Collins Street towards Docklands linking up with both Collins which is supported by the heavy Asian market consumption and Square and Melbourne Quarter. improved tourism traffic seen in this precinct.

Average incentives are at 5.5 per cent, which is the lowest level In terms of tenant activity, Celine joined luxury brands Fendi, across the CBD retail precincts nationally. It is currently a two-tier Van Cleef & Arpels, Cartier and Gucci on Collins Street and will market, where the Food and Beverage and Luxury retail sectors open their first standalone Australian store at 113 Collins Street are growing and incentives for these groups are reducing, whilst (548sqm) replacing Cose Ipanema, cementing this strip as the tenancies along Swanston Street are seeing incentives increasing, CBD’s most premium retail strip destination. with stable rents. With demand by and large improving in the CBD, and the number of mixed-use developments in the CBD’s Western Vacancy falls Core with ground floor retail offerings approaching completion, Despite disruptive forces in the retail market, there is still a strong we are of the view that this will result in positive effective rental demand for space from international entrants or high-end and growth over the next twelve months. international apparel flagships within the Melbourne CBD.

Tight vacancies are pushing tenants to look outside of the high- traffic locations in the CBD Grid. This was evidenced by Starbucks

14 recently securing 168 Exhibition Street – their first non-core CBD Melbourne CBD Gross Face Rents Incentives ($/sqm) asset. They have secured a seven year lease for the 117sqm site Forecast $8,000 7.0% $7,800 with a reported gross face rent of $1,400 per sqm. 6.0% $7,600 5.0% $7,400 4.0% Growing appeal for Melbourne’s CBD assets m $7,200 q s / sparks wave of transaction activity $ $7,000 3.0% $6,800 2.0% $6,600 Melbourne’s retail property has been a major recipient of 1.0% $6,400 investment with privates looking for value-add retail asset $6,200 0.0% 1 7 3 9 5 8 6 4 7 3 9 5 8 6 4 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 ------r r r r r r r r p p p p p p p r p a a a a a a a a e e e e e e e a opportunities. Investors are actively seeking to secure a position e S M S S M S M S S M S M M M M S M and are strategically acquiring assets particularly in the tightly Gross Face Rent Incentives held retail strip of Bourke Street Mall. 274-278 Bourke Street, is Source: Colliers International the oldest freehold building within Melbourne’s retail precinct and has been placed on the market for the first time since the 1950s. Melbourne CBD Retail Yields The three-storey building is currently leased to Swarovskiand Forecast 6.50% Windsor Smith until late 2021. Another rare freehold retail asset recently sold on Bourke Hill at 72-74 Bourke Street. The 1880’s 4.50% building leased to long term tenant Bottega restaurant stands on 2.50% a 198sqm site in the east end of the CBD sandwiched between 0.50% Melbourne icons Grossi Florentino and Pellegrini’s. The asset sold -1.50% for $7.15 million at a yield 2.96 per cent. -3.50% 1 1 7 3 9 5 8 6 9 4 2 8 0 0 1 1 1 1 1 1 1 1 2 1 1 0

Melbourne’s CBD retail market continued to demonstrate strong 0 2 ------r - r r r r r r r r r r r r r a a a a a a a a a a a a a a M M M M M M M M M M M M M results over the year to March 2018 with yields steadily trending M downwards to 4.88 per cent, compressing by 12 basis points Average Spread Average Yield during this period. This compression was as a result of limited Source: Colliers International stock available on the market and strong purchaser demand. The spread between the risk-free rate and prime assets are Victoria Population Growth Year to September sitting at 140 basis points as at March 2018, suggesting there is still room for further compression into 4Q18, given the historical 170,000 150,000 average spread is 92 basis points. Further, the influx of foreign 130,000 s n

o 110,000 s r investment, strong tourism market, and population growth will e 90,000 p

f o 70,000 further place downwards pressure on prime retail yields. The . o N 50,000 recent transaction of 185-187 Lonsdale St, Melbourne will see a 30,000 remixing of the ground floor tenancy with the recently refurbished 10,000 -10,000 1 7 9 8 3 5 6 4 2 0 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 freestanding building offering new 10 year leases across the three 0 0 0 2 2 2 2 2 2 2 2 2 2 floors. The prime corner building was purchased by a Chinese Overseas Migration Interstate Migration Natural Increase investor for $10.15 million, reflecting a yield of 3.69 per cent on a Source: Colliers International 8.7-year WALE.

M-City, Monash 2107-2125 Princes Highway, Clayton VIC Retail leasing on behalf of Schiavello Pty Ltd

Retail | Research & Forecast Report | First Half 2018 15 Research & Forecast Report BRISBANE CBD & GOLD COAST Retail | First Half 2018

By Helen Swanson Evolution of fine dining Manager | Research [email protected] In such a competitive market, the food and beverage sector appears to be adapting to the new generation’s needs. Time poor, dollar savvy and with a multicultural palette, Gen Y and Z MARKET HIGHLIGHTS population’s needs are being met with the focus of dining moving from a la carte options to quick, convenient and hip settings Strong net interstate migration growth anticipated to assist offering a variety of cuisines. We have more recently seen a retail spending proliferation of this type of dining option not only in the CBD but in suburban locations such as Chermside and Mt Gravatt. Landlord flexibility key to securing retail leasing deals Opportunity for supermarkets & convenience Record yields continue to be achieved for Queensland in inner city Neighbourhood retail assets A consistent performer for retail turnover in Queensland has been food retailing. There is currently limited supply of express supermarkets and quality IGA, ALDI centres from CBD through Improving economic fundamental to assist to northern suburbs. Given the strong forecasts for population retail spending growth in the CBD driven by new residential and student Overall performance of the Queensland economy continues to developments, along with ever improving net interstate migration improve with the State now making a clear transition from reliance rates, it is no surprise that there now appears a gap in the market upon mining investment to the service sector. The significant for supermarket offerings in some CBD and inner city precincts. number of major infrastructure projects – currently at $43 billion planned and under construction - across greater Brisbane, Investment market combined with the nation’s leading net interstate migration figure at 19,284 and rising job advertisements, suggests that the overall Total sales of Queensland retail assets for the 2017 calendar economic conditions, although below historical levels, have year totalled $2.3 billion which was a 9.5 per cent increase on improved. This should help assist the retail sector in the coming the $2.1 billion recorded in 2016. Contributing to the $2.3 billion year through the possibility of boosted retail spending figures. in 2017 was $726 million of neighbourhood sales, representing 32 per cent of the dollar volume of sales. Warner Marketplace On average net face rents for prime high street retail tenancies was the largest priced neighbourhood asset to sell in 2017 selling sub 200 sqm as at March quarter 2018 range from $1,500 to for $78.4 million to AMP on an initial yield of 5.18 per cent. This $7,000 per sqm with incentives at 15 per cent. This has come sale represented the second tightest neighbourhood yield in back from $1,500 to $7,900 per sqm which was achieved in 2017. Queensland recorded in 2017. The tightest neighbourhood initial Although leasing conditions remain challenging, landlords that yield recorded in 2017 was 5.14 per cent for Benowa Village are able to offer flexibility in their leasing terms and/ or provide which sold for $49.5 million to a private investor. Other major market incentives are achieving shorter letting up periods. The retail sales to take place were sub and super regionals of which majority of leasing activity at present in the CBD appears to be more recently included: directed towards fast food / takeaway tenancies located in high • Kawana Shopping World selling for $215.5 million to ISPT for traffic foot pedestrian corridors. an initial yield of 5.5 per cent

16 • Grand Plaza Shopping Centre 50 per cent stake sold for circa Net Interstate Migration by State $215 million 40,000 • Indooroopilly Shopping Centre selling a 50 per cent stake to 30,000 AMP for $810million for an initial yield of 4.25 per cent. 20,000 10,000 In summary, demand for Queensland’s retail assets has been 0 -10,000 strong for several years now. Fierce competition, particularly -20,000 for neighbourhood centres located in a strong population growth -30,000 -40,000 1 1 7 7 7 7 3 9 3 5 5 9 8 6 6 5 5 4 4 8 6 2 6 4 4 2 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 corridor with long WALE has resulted in yields on average 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 ------r ------r p r r r r r r p p p p p p r p r r r r r p a p p p p p a e a a a a a a e e e e e e a e a a a a a e e e e e e S M S M S M S S M S M S M M S compressing 125 basis points over the last 24 months to M S M S M S S S M M S M M NSW VIC QLD SA WA December 2017. More recently however speculation regarding global inflation rising and the spread between risk free retail Source: ABS 3101.1 assets approaching long term historical averages suggest that Brisbane CBD High Street Retail Average Gross Face Rents yields may have reached the bottom of the market. Additionally, and Incentives given rental growth expectations for most retail assets in $5,000 20.00% Queensland are currently predicted to be flat over the coming 12 $4,500 18.00% months investors are becoming more cautious when assessing $4,000 16.00% $3,500 14.00% their investment options. Yields for prime neighbourhood centres $3,000 12.00% as at the March quarter 2018 sit at 5.5 to 7 per cent softening $2,500 10.00% $2,000 8.00% from 5.35 to 7 per cent recorded in the previous quarter. All $1,500 6.00% other retail asset classes recorded no movement in yields over $1,000 4.00% $500 2.00% the quarter. The limited supply of assets on the market for $0 0.00% 1 1 9 9 8 7 8 7 3 3 5 6 5 8 4 6 2 4 2 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 ------r p r r r r r r r p r p p p p p p r r a p p a a e a a a a a a e e e e e e e a a e e S M S M S M S S M M S M S M M S M S M S purchase, however, as well as a limited future supply pipeline of M new retail assets currently planned, does mean that there is room Avg Gross Face Rents Avg Gross Incentives for strong transaction results, given the right asset, as demand for Source: Colliers Edge, 2018 Australian property is still strong globally. Additionally population • Counter cyclical opportunities may arise for larger owners and interstate migration forecasts are currently looking positive, of large neighbourhood centres to refurbish their premises particularly for South-East Queensland. in preparation of upcoming competition. Major multi-million dollar refurbishments to major town centres such as Robina, Pacific Fair, and Chevron Renaissance is testament to Gold Coast owners’ optimistic outlook for the retail sector on the Gold The Gold Coast economy is showing no signs of slowing even Coast over the short to medium term. after the conclusion of the Commonwealth Games in April this There was strong market activity for retail assets on the Gold year. There are four factors that are helping boost the economy Coast particularly over the second half of 2017. A total of circa which in turn will help the retail property sector over the coming $300 million retail assets (priced $5million and above) sold across year including: the Gold Coast in 2017. Some transactions to note include:

• Significant investment in infrastructure projects • Coles Pacific Pines – Freestanding Coles neighbourhood • Improved tourism numbers centre which sold for $30.025 million to a private local family • Strong migration and population growth for a record low yield of 4.59 per cent. • Benowa Village – Fully leased Coles neighbourhood centre • Strong employment growth selling to a private Chinese investor for $49.5 million at 5.08 We see the below as opportunities for the Gold Coast retail sector per cent. The property had 13 specialty tenants along with a over the coming year - freestanding McDonalds outlet and a Coles Express service • Population growth continues to improve across the Gold station and a weighted average lease expiry term of more Coast, with the region recording strong regional net than 11 years. migration. This should help support the demand for retail Furthermore, and looking forward this trend is set to continue with properties in the short to medium term. already two big ticket items hitting the market including: • New residential estates planned, particularly along the northern Gold Coast corridor, may result in the future • The Strand, Coolangatta demand for small neighbourhood and convenience centres to • Soul Boardwalk, Surfers Paradise. service the local growing catchment area.

Retail | Research & Forecast Report | First Half 2018 17 Research & Forecast Report ADELAIDE Retail | First Half 2018

By Kate Gray ease. In terms of category performance, spending at cafes and Director | Research restaurants has experienced consistent strength over the past two [email protected] years, exceeding both state and national levels of growth.

MARKET HIGHLIGHTS Romeos foodland to open in Citi Centre After the sale of Citi Centre last year to a private investor, the Adelaide central markets to be redeveloped food court was closed at the end of 2017. This was the second food court to close last year, with the Renaissance Arcade closing H&M to open along Rundle Mall due to the redevelopment of the Realm residential project. The Renaissance food court is expected to be reopened in 2019 once the construction of the residential project is complete. The Citi Adelaide’s west end laneways reactivated Centre food court space is currently under refurbishment with a Foodland run by the Romeos Group expected to open closer to the H&M to open in Rundle Mall end of 2018. The format of this store is expected to have a strong emphasis on the gourmet takeaway food in what is described as a H&M have announced that they will open their first store in New York-style supermarket. Adelaide on Rundle Mall. They are expected to be the anchor tenant for the $40 million redevelopment of Rundle Mall Plaza. The redevelopment over four levels is expected to have a high- Laneways reactivated tech hub at the lower ground, a dining precinct on level one and Over the last five years there has been a transformation health & well-being precinct on level two. The H&M store, which underway, in some of the Adelaide CBD laneways. The small will occupy the ground floor, is expected to open in Q4 2018. This bar licence was introduced in 2013 combined with the return of redevelopment has seen several tenants which occupied space in AFL to the Adelaide CBD has created the conditions to create Rundle Mall Plaza relocate, with Athlete’s Foot and OPSM taking a vibrant laneway scene. Since these changes to licencing 89 space along Rundle Mall. new bars licences have been issued, with many of these in Adelaide’s laneways. There are two precincts which have seen The development at 11-13 Rundle Mall is now complete with Spec a resurgence. In the West end (which takes in Gilbert Place, Savers and Bank SA moving into the new space. Telstra has taken Gresham Street, Peel Street, Bank Street, and Leigh Street) the the old Bank SA at 51 Rundle Mall and the old Specsavers space laneways have seen the largest transformation, with many shut is yet to be leased. Vacancy along Rundle Mall has increased in the off from traffic and welcoming a range of food and bar operators. last six months to 2.9 per cent, up from 1.4 percent in September The East end, which includes Ebenezer Place, Vardon Place and 2017. It is worth noting that there are several tenancies which Union Street has Rundle Street in close proximity which is a well are currently occupied, but are being offered for lease, which may established as a food and fashion precinct. The state and local push the vacancy rate higher in the coming six months. Rents governments have invested in over $14 million to upgrade the along Rundle Mall have remained unchanged over the last six streetscapes several of these precincts. All of this investment has months, but are likely to come under pressure in the coming 12 resulted in significant private investment along these laneways, months. with several winning awards for design over recent years, such Retail sales start to slow as Pink Moon Saloon and Shobosho in Leigh Street, which won awards in 2016 and 2017 respectively. Following approximately 12 months of outperformance relative to national averages, South Australian retail sales have started to

18 Redevelopment of Central Market Arcade Rundle Mall Vacancy

The Adelaide City Council has gone to the market to source 5.0% partners for the redevelopment of the Central Market precinct. 4.5% 4.0% The leasehold tenure over the Central Market Arcade will revert 3.5% to the City of Adelaide later in 2018 which will make way for the 3.0% redevelopment. This project is still in the planning stages, with 2.5% 2.0% construction not expected to commence until at least 2020. As 1.5% part of the redevelopment the Central Market has undertaken a 1.0% 0.5% four-year strategic review. This is likely to see a more pop up 0.0% stores and activation on Gouger and Grote Streets and a possible adjustment to the trading hours. The Adelaide Central Markets are Source: Colliers International one of the largest undercover food markets and is considered by many to be one of the top 10 produce markets in the world. Retail Sales - SA (% change YoY)

10.0% Kings Junction 9.0% 8.0% The Kings Junction redevelopment located in Salisbury South 7.0% is expected to commence stage one (28,000sqm) by the end 6.0% 5.0% of 2018. This development, which is being undertaken by local 4.0% developer GIC Australia, is to be completed over several stages, 3.0% 2.0% with a completed size of around 75,000sqm. The first stage is 1.0% expected to be underpinned by a Coles and a K-Mart as anchor 0.0% tenants. This is one of the largest shopping centre developments Food HH Goods Cloth & Foot Dept Store Other Caf & Rest to commence in recent years. Annual growth % SA National Source: ABS Retail sales remain strong Snapshot - CBD - Gross Face Rents Retail sales in South Australia have remained above the national average with an annual growth rate of 3.6 percent compared to 14000 0.15 12000 the national growth rate of 3.0 percent. South Australia is the 0.1 second fastest growing retail sector behind Victoria. The Café 10000 0.05 and Restaurant sector is driving a significant proportion of this 8000 6000 growth with an annual growth rate of 9.8 percent which has well 0 out performed any other sector. Food continues to perform well, 4000 -0.05 growing at 3.8 percent over the past 12 months. As with the 2000 trends nationally, department stores continue to underperform, 0 -0.1 Sydney Melbourne Brisbane Perth Adelaide with only 0.5 percent growth over the year. Gross Face Rents YoY % Change

Source: Colliers International

South Australia - Retail Yield Range

8.5%

7.5% 6.5% 5.5%

4.5%

3.5%

Kings Junction, Salisbury South SA Source: Colliers International Retail Leasing and Real Estate Management on behalf of GIC Australia

Retail | Research & Forecast Report | First Half 2018 19 Research & Forecast Report PERTH Retail | First Half 2018

By Quyen Quach to average $3,388/sqm for space ranging between 50sqm and Senior Research Analyst | Research 100sqm. Over the year, rents were 7.6 per cent lower. [email protected] Current trading conditions have seen some tenants struggle to meet rent commitments and some landlords have been MARKET HIGHLIGHTS accommodative in order to maintain occupancy levels. In terms of new arrivals and openings the most notable is Uniqlo, Consumer confidence continues to strengthen as economic which is expected to open its doors in the Murray St Mall during outlook improves Q3 2018. There are also a number of precincts within the CBD that have recently been completed and have begun trading. Market The ‘reverse wealth effect’ of an underperforming residential Grounds, the largest pub in the Perth CBD, was opened at Kings sector may be taking its toll on some sectors Square in December 2017 and looks to be performing very well. A short distance away and within the same ‘Perth City Link’ Café, Restaurants and takeaway food services still a precinct, Yagan Square opened in March 2018. This new area shining star features an upper level pub and ground floor stalls housing an eclectic mix of local food providers, some commencing life in the food truck scene. Current retail market conditions The other two major retail precinct redevelopments at Raine The WA retail trade environment remained sluggish over the Square and Forrest Chase are progressing well, with Raine December 2017 quarter. In nominal terms, WA seasonally- Square expected to re-open in H2 2018 and the first of the four adjusted retail turnover increased 0.01 per cent to $8.49 billion stages of Forrest Chase will also re-open in late 2018. over the December 2017 quarter. In comparison, national seasonally adjusted turnover increased 1.12 per cent to $78.7 ‘Slow food’ quickly snatching fast food share billion. It seems odd that during challenging economic times that This underperformance was attributed to turnover contraction in restaurants and the prepared meals sector are doing a brisk trade, ‘Other Goods’, ‘Department Stores’ and ‘Household Goods’ which but that is exactly what is happening in WA. Growth in the ‘Café, declined 2.22, 0.88 and 0.71 per cent respectively. Sub-groups Restaurants and takeaway food services’ sector has been solid that offset these contractions were: ‘Clothing & Soft Goods’ over the past year. It is still nothing like the boom period’s +10 per (+3.91%), and Café, Restaurants and takeaway food services’ cent annual growth rates, but sound all the same. (+1.36%). Like we have witnessed in other industry sectors over the past The soft retail trading conditions have been mirrored in per capita turnover. The latest estimates from Deloitte Access Economics 5-10 years, digital disruption has arrived on the Perth food scene show real turnover per capita declining 0.91 per cent annually for and is having a huge impact. In the same way as it has in other the March 2018 quarter. global cities, when digitally based on-demand food delivery was launched in Perth, food service providers that embraced this Demand for retail space remained subdued over the March 2018 technology reaped the benefits. quarter, with achievable rents continuing to be hampered by soft economic factors and restrained retail spend growth. Average ‘Café, Restaurants and takeaway food services’ trading conditions CBD rents declined 1.24 per cent over the Mach 2018 quarter slumped as the resources sector investment downturn began in

20 earnest in 2013. However, the arrival in Perth of on-demand food Real W.A. State Final Demand Growth delivery services Uber Eats and Deliveroo in late 2016 kicked-off 20% 18% 16% a recovery in trading conditions that has resulted in year-on- 14% 12% ) . year growth consistently recording above 5 per cent since the j 10% d A

. 8% a e 6% S ( December 2016 quarter. All the while other retail sectors have h

t 4% w

o 2% r regularly posted negative annual growth (with the exception of G 0% -2% ‘Food’). -4% -6% -8% -10% The impact of this disruption has seen restaurants and cafes -12% 1 1 7 9 7 7 8 6 3 7 9 5 8 6 6 4 2 3 5 6 4 0 2 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 ------c n c c n c c c c n n c n n n n c c n c c n n n e u e e u e e e e u u e u u u u e e u e e u u u J D J J D J J J J D D D J D D D J D J J J D D quickly snatch market share from traditional fast-food retailers. D

So much so that most of the fast-food chains such as McDonalds, Seasonally Adj. Quarterly Change Annual Change (YoY) 10 Year Average

Red Rooster, Subway and Chicken Treat have also adopted a Source: Colliers International delivery service to fend off the market share grab. Perth CBD Mall and High Street Average Rents Retail supply update $4,500 $4,000

There was an estimated 87,885sqm of retail space added to the m q

s $3,500 / $

e Greater Perth area in 2017 (excluding Large Format Retail). The t a R $3,000 s s o space added was primarily neighbourhood and sub-regional r G

e

g $2,500

a r

centre stock, with 49,745sqm and 23,450sqm added respectively. e v A $2,000 Currently 146,535sqm of space is scheduled to be completed in $1,500 2018 across the Greater Perth area. Approximately 63,480sqm $1,000 1 1 7 7 9 3 9 8 3 5 8 6 5 4 8 6 2 4 2 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 - 0 ------had been completed at the end of March 2018, while 83,055sqm p p p p p p p p a r p p a r e a r a r a r a r a r a r a r e e e e e e e a r a r e e S M S M S M S S M S M M S M M S M S M S of this space is still under construction. M Source: Colliers International The vast majority of this space will be in larger centres - major regional, regional and sub-regional centres - with a combined total Real Retail Turnover Growth Forecast (Constant Prices) of 128,485sqm. Only 8,335sqm of space is due to be delivered in 10% Deloitte Access neighbourhood centres in 2018, with the remainder (9,720sqm) 8% Economics Forecast r a e Y

s will be in the Perth CBD. u 6% o i v e r P

n 4% o

A further 123,395sqm of space is scheduled for addition in 2019, e g n a h

C 2% which includes major expansion at Whitfords, Innaloo and Midland. %

With a total of 19,725sqm of this currently under construction - 0% mostly made up of the Midland Gate expansion. -2% 1 1 1 7 7 3 5 3 6 9 8 5 4 7 3 6 2 5 2 8 0 9 4 2 6 0 4 0 1 1 1 1 1 1 1 1 0 1 2 1 2 2 2 2 2 0 2 2 0 0 0 0 0 0 0 - 0 ------1 0 7 6 8 3 2 5 4 1 9 0 1 0 6 3 2 5 7 4 6 9 8 3 2 1 5 9 4 1 1 1 1 1 1 1 1 2 1 2 0 0 0 2 2 2 2 2 0 0 0 0 0 0 0 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9 0 0 0 0 0 0 0 0 2 0 0 0 2 2 2 2 2 2 2 2 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 The outlook Western Australia Australia Source: Deloitte Access Economics Business Outlook, Colliers International In the short-term, economic conditions are likely to remain mixed. State Final Demand growth is expected to be sluggish in 2017- 18. However as the economy and labour markets stabilise, the benefits of this should flow through to household incomes. This, combined with the gradual improvement in population growth and the expected return of better wages growth, should see total turnover growth for the retail sector recover in the years ahead.

We expect trading conditions for some retail sub-groups to remain challenging, particularly ‘Other goods’, ‘Department stores’ and ‘Household goods’. Meanwhile ‘Food’, ‘Café, Restaurants and takeaway food services’ and ‘Clothing and soft goods’ are likely to experience positive growth as the state’s population also improves.

Murray Street Mall, 650 Hay Street (Uniqlo), Perth WA Retail Leasing on behalf of Starhill

Retail | Research & Forecast Report | First Half 2018 21 Research & Forecast Report CENTRES Retail | First Half 2018

By Kate Gray New entrants and market changing disruption in the retail sector Director | Research has meant retailers and retail centre owners have had to adapt. [email protected] Disruption has placed further pressure on some retail categories, such as department stores, books, newspapers struggling more than others due to changing technology for delivery of news and MARKET HIGHLIGHTS books and spending patterns for department stores. Certain retail categories have shrunk their networks or ceased to exist, such as Changing spending pattern leads to new development offerings music and video stores and book stores. Despite these exits there has been retailers to fill the space. Kaufland active in development site acquisition Disruption has resulted in a far more fragmented retail market, with the current retail categories of neighbourhood, subregional, Westfield sell off shore assets regional and large format retail becoming less relevant as retail landlords adapt to the changing market. The traditional model of Westfield International assets sold continuing to expand retail floor space of centres in established demographics is being tested with some retail land lords exploring In December 2017 the Lowy family, which built the Westfield different models of retail. We are seeing examples of removing property portfolio, announced that they would be selling all of their underperforming retail space and replacing with other retail types. offshore assets to the French owned Unibail-Rodamco for $32.7 Examples include underperforming DDS being removed and billion dollars. This transaction was one of the largest Australia redeveloped into a Large Format Retail offering within a traditional takeovers and concluded at the end of May. The Australian assets shopping centre. There are examples of supermarkets being an were placed in a separate listed company (Scentre) in 2014 and anchor to what is traditionally a Large Format Centre. Also being remain unaffected by this transaction. The assets sold include considered is the addition of residential space and even hotel 45 centres across the UK, US and Italy and including the trophy developments as part of a traditional retail centre. Retail landlords assets of Westfield World Trade Centre in New York and Westfield are being more innovative with the changing landscape of retail London. and need to offer a point of differentiation to competitors. This is also spreading the risks and deriving additional income streams Changing patterns of spending from other sources which could be other retail sectors, or even As highlighted in the market overview the retail market has other property sectors such as office, hotel or residential. This experienced a shift in the spending patterns of consumers. requires a tailored approach which suits the customers which live Spending patterns have evolved towards stronger growth in food in the catchment of the centre categories including food experiences such as café and restaurant spending. Across the broader economy overall spending has Development pipeline remained fragile and despite a strong jobs market nationally The pipeline of supply is expected to see 666,178 sqm of retail income growth has remained below average which has limited the space complete during 2018. This includes a combination of growth in retail spending. extensions, refurbishments and new centres. This is above the five year average of 290,000 sqm.

22 There has been a slowing in the addition of new stores for both Regional Centres 1Q18 Gross Face Rents Coles and Woolworths over the past couple of years. The focus $2,500 15.0% has move more towards upgrading the existing store network to 10.0% increase market share in existing catchments. $2,000 5.0% Examples of this include the next development stage of Chadstone $1,500 0.0% which is owned by Vicinity and The Gandel Group. This will see $1,000 -5.0% the development of a Hotel and will see luxury retail in particular $500 expand. Vicinity are a leader in the mixed use development and -10.0% creating additional revenue streams for centres. $0 -15.0% Sydney Melbourne Brisbane Perth Adelaide

Market entry of Kaufland Gross face rent % growth YoY Source: Colliers International Kaufland which is a brand of the Schwarz Gruppe the fourth largest retail group in the world, has been active in identifying Sub-Regional Centres 1Q18 Gross Face Rents development sites to build their store network in Australia. $1,400 0.0% Their first purchase was in Adelaide of the Former LeCornu $1,200 -1.0% Site in Keswick late in 2017 and a more recent acquisition is -2.0% $1,000 of the former Bunnings site in Dandenong. It is understood -3.0% $800 that they are in active negotiations on other sites across the -4.0% $600 country. Kaufland is a different consumer experience as it brings -5.0% $400 together what would traditionally be a DDS and a supermarket, -6.0% and is like bringing together a Kmart and an Aldi and is called $200 -7.0% a ‘hypermarket’. This will increase competition in the currently $0 -8.0% Sydney Melbourne Brisbane Perth Adelaide competitive grocery market with four main players of Coles, Gross face rent % growth YoY Woolworths. Aldi and IGA/Metcash. There is no indication as to Source: Colliers International when the first store will open, but recruitment has commenced to support the retail network.

Indooroopilly Shopping Centre, Indooroopilly QLD Sold on behalf of Commonwealth Superannuation Corporation (CSC)

Retail | Research & Forecast Report | First Half 2018 23 Neighbourhood Centres - Leasing markets 1Q18 Gross Face Rents ($/sqm/pa) Regional centres $1,200 0.0% -2.0% $1,000 Regional centres in NSW have seen strong growth in specialty -4.0% rents over the last 12 months with average rent of $1,994/sqm $800 -6.0% -8.0% which is a 12.5 per cent increase. There has however been a $600 -10.0% slight increase in incentives to 14 percent. This annual growth has $400 -12.0% not been reflected across other states. Victoria has seen modest -14.0% $200 growth recording 1.4 per cent for an average of $1,800/sqm with -16.0% $0 -18.0% incentives of 7 percent. Brisbane saw a marginal yoy decline -0.4 Sydney Melbourne Brisbane Perth Adelaide per cent for an average of 1,600/sqm. Perth has seen the largest Gross face rent % growth YoY decline in annual rents falling -9.5 percent to $995/sqm. Adelaide Source: Colliers International saw annual rents fall -7.4 per cent to an average of $1,494/sqm with an incentive of 17.5 percent. Wholesale Electricity Prices ($/megawatt hour) Sub Regional $160 150.00% $140 100.00% Sub regional centres in Sydney and Melbourne have seen no $120 rental growth over the last year. Average rents for Sydney remain $100 50.00% $80 at $1,325/sqm and Melbourne $1,060/sqm with both seeing an $60 0.00% average incentive of 15 percent. Brisbane average rents fell $40 -50.00% marginally (-0.2 per cent) $1,108/sqm, but incentives remained $20 high at 25 percent. Adelaide sub regional centres have seen the $- -100.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 largest decline falling 6.9 percent annually with an average of y/y % growth AU average ($/megawatt hour) $745 and also saw the highest incentives nationally at 30 per cent. With high exposure to discount department stores and a Source: AER higher concentration of fashion this sector has come under much scrutiny, however there are excellent examples where owners percent. Perth has seen the large falls in rents with an average of have repositioned centres though a strong leasing strategy $469/sqm which has fallen 15.8 percent. Incentives in Perth are and are performing well and therefore probably needs to be circa 20 percent. considered on an asset by asset basis with this segment seeing a wide variance in performance. Case study Neighbourhood centres Changing patterns of spending Across all cities neighbourhood centres have seen adjustments Foodland at Frewville & Pasadena in South Australia is owned in rents over the last 12 months. Sydney and Adelaide have faired and operated by the Chapley family who are second generation the best with falls of 2.3 percent and 1.9 percent respectively. food retailers who have been in the grocery business for over 60 Sydney has seen an average rents of $1,050/sqm the highest in years. Their Frewville store was named the International retailer the nation with incentives of 15 percent. Adelaide has incentives of the year at the IGA conference in the US in 2016. Post this at the higher end of the range at 22.5 percent with an average of award they have continued to strive for excellence within their $520/sqm. Melbourne has an average rent of the $765/sqm which stores with Frewville and Pasadena being standout examples of has fallen 4.4 percent. Brisbane saw rents fall 6.3 percent for an food retailing. Pasadena undertook a refurbishment in 2017 which average of $750/sqm with the highest incentive nationally at 25 has taken several of the elements which have led to the success of their Frewville stores.

24 Their philosophy is to put the customer and customer experience AREIT Retail Portfolio Weighted Average Cap Rates at the centre and base their offering around this. They have no 7.00% self-serve check outs with a preference for customer service. 6.50% Produce is sourced locally where possible with a range of local 6.00% brands which are not widely stocked in other supermarkets. They also offer an online supermarket bananablue.com.au which 5.50% offers store pick up, delivered and in car collection. Some of 5.00% the innovative touches seen in Frewville and Pasadena include 4.50% live music with a piano in store, an expanded organic fruit and 4.00% veg section including a wide selection of Asian produce, an VCX GPT* SCG SGP** MGR** CQR SCP Ave extensive cheese and small goods deli and instore flower bar. Dec-16 Jun-17 Dec-17 In the Pasadena refurbishment there is an extensive bread Source: Company reporting and patisserie, in store butcher and fish monger as well as a Australian Shopping Centre Supply (‘000 sqm) seafood bar, spice bar and apothecary. Mr Nick’s concept has 1,400 also been added to these stores which offers an instore dining 1,200 experience. This brings the market feel to a supermarket range and experience. These stores are branded “Adelaide’s Finest” and 1,000 continue to excel in placing the customer and the community at 800 the centre of their retail philosophy. 600

400

200

- 2018 2019 2020 2021 2022 Source: Cordell, Company reporting, Colliers International

Garden City Regional Shopping Centre, Booragoon WA Valued on behalf of AMP Capital

Retail | Research & Forecast Report | First Half 2018 25 Research & Forecast Report LARGE FORMAT RETAIL Retail | First Half 2018

By Kate Gray Development pipeline Director | Research [email protected] The Home Consortium conversion of Masters stores continues with ten sites already open which include Tingalpa, Marsden Park, North Lakes, Toowoomba, Pakenham, South Morang, Rutherford MARKET HIGHLIGHTS and Penrith. Sites at Ballarat and Joondalup are underway. Home consortium have 40 sites which are progressively being converted Broadening of the tenancy mix in the large format retail sector which will see circa 500,000 sqm of space converted to Large Format Retail. Demand for space in these centres is strong with Aventus active in the investment market those currently trading having low vacancy.

The extension of the Tuggerah centre which will add a further Conversion of Masters space continues 10,000 sqm of space has commenced. This $15 million expansion is expected to complete in mid-2018 and will see a further 11 retailers added to this centre. Aventus are also planning expansion Broadening of tenancy mix of Cranbourne (VIC) and Mile end (SA) centres over the next 12 months. The first child care centre addition has also been added Some of the larger institutional owners of Large Format Retail are to Cranbourne Home in Victoria. actively broadening the tenancy mix of some of their Large Format Retail centres. Aventus which is the largest pure play Large Decathalon and Kaufland Format Retail owner now have circa 37 per cent of their tenant mix in the form of non-traditional Large Format Retail which Decathlon have over 1,200 stores in 30 countries with an annual includes the addition of café, supermarkets, gyms and even child turnover of $15 billion. Decathlon have plans to open between care centres. The repositioning of Large Format Retail centres two to five stores annually and expect to create a network of 35 has resulted in higher occupancy with many leases having rental stores nationally. Decathlon’s Tempe store is 3,800 sqm which is upside with increases built into leases. more than double the size of the rival retailers with circa 7,000 products on offer. Their core offering is private label product This has been assisted by planning reforms in Victoria and which accounts for 70 per cent of the stock which allows them to Western Australia which allows for a broader mix within the large be very price competitive. A further store is expected to open in format zoning, with New South Wales investigating implementing Melbourne sometime this year. The entry of Decathlon is expected similar reforms. This allows owners to fill current vacancies or to have an impact on the current retailers in the category such as extend current centres with a wider variety of retailers in a hybrid Rebel Sports, with Decathlon known to be highly competitive on retail model. This also diversifies the income streams from just price. It is also possible that they will compete with other discount household goods to other retail categories. department stores such as Kmart and Target.

26 Kaufland continues to be active in the market securing development sites in Keswick (SA) and Dandenong (VIC). The Retail Sales - HH Goods (% change month on pcp) German retailer has been ramping up recruitment across the 14% 12% nation and is expected to see stores starting to operate in 2018. 10% Kaufland’s hypermart stores are circa 14,000 sqm which is four 8% 6% to five times larger than the Coles or Woolworths model. Their 4% stores also include a range which is traditionally found in discount 2% 0% department stores and has been likened to the Costco model. The -2% entry of Kaufland will add further disruption to the supermarket -4% sector, but could also impact the current discount department stores of Target and Kmart. HH Goods AU Total Source: ABS Costco expansion

Costco are planning a $77 million distribution centre HQ in Kemps Large Format Investment Sales Volumes Creek NSW. This is the first distribution centre for Costco in 2000 Australia and is expected to be a 33,588 sqm facility which is 1800 planned to complete in 2019. Costco plan to expand their current 1600 s

n 1400 o i

store network of nine stores to up to 30 stores over the next l l

i 1200 M decade. The most recent store in Marsden Park in NSW is one $ 1000 of the largest tenants in the precinct with a 13,575 sqm store. 800 Victoria’s fourth Costco store located at Pacific Epping is under 600 400 construction and is due to open later this year. The second 200 Queensland store at Ipswich is under construction and is also 0 expected to complete this year. Costco already have plans for two 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Colliers International stores in Perth one at the Airport and a second in the south with possible plans for a third store.

1Q18 Gross Face Rents ($/sqm/pa) $600 7.0%

$500 6.0% 5.0% $400 4.0% $300 3.0% $200 2.0% $100 1.0% $0 0.0% Sydney Melbourne Brisbane Perth Adelaide

Gross Face Rents YoY % Change

Source: Colliers International

Large Format Retail Supply

700,000

600,000

500,000

Primewest Auburn Megamall, 265 Parramatta Road, Auburn NSW 400,000 Retail leasing on behalf of Primewest 300,000

200,000

100,000

0 2013 2014 2015 2016 2017 2018 2019 2020 2021

ACT NSW NT QLD SA TAS VIC WA

Source: Colliers International

Retail | Research & Forecast Report | First Half 2018 27 OUR EXPERIENCE RETAIL

LEASED 565 tenancies covering 224,930 square metres

M-City, Monash Northpoint, 100 Miller Street Murray Street Mall 2107-2125 Princes Highway North Sydney, NSW 650 Hay Street Clayton, VIC 5,000m² Perth, WA (Uniqlo) 26,500m² On behalf of Cromwell 2,400m² On behalf of On behalf of Starhill Schiavello Pty Ltd

SOLD 117 assets totalling over $9 billion value*

Indooroopilly Shopping Centre Kawana Shoppingworld Salamander Bay Centre Indooroopilly, QLD Buddina, QLD Salamander Bay, NSW $810 million (50% interest) $215.5 million (50% interest) $174.5 million On behalf of Commonwealth On behalf of Mirvac On behalf of Vicinity Centres Superannuation Corporation (CSC)

MANAGED 276 assets totalling over 1,336,476 square meters

Sapphire Market Place Ipswich Homebase Dandenong, VIC Bega, NSW Ipswich, QLD 31,780m² 17,065m² 12,903m² On behalf of Primewest On behalf of Woolworths On behalf of Primewest Group

VALUED 5 million square metres totalling over $40 billion worth in value

Westfield Marion Garden City Indooroopilly Shopping Oaklands Park, SA Booragoon, WA Centre, QLD Regional Centre Regional Shopping Centre Regional Shopping Centre 137,000m² 119,000m² 116,000m² On behalf of Lendlease On behalf of AMP Capital On behalf of Eureka

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

565 tenancies covering 224,930 square metres

Burnside Village Crossroads The Commons 447 Portrush Road Homemaker Centre 171 Casuarina Way Glenside, SA (Mecca Maxima) Casula, NSW Casuarina NSW 214m² 55,371m² 32,493m² On behalf of Burnside Village On behalf of AMP On behalf of Primewest Pty Ltd

117 assets totalling over $9 billion value*

Bathurst City Centre Chester Square Lisarow Plaza Bathurst, NSW Shopping Centre Lisarow, NSW $71.5 million Chester Hill, NSW $29.1 million On behalf of Vicinity Centres $68.5 million On behalf of a local private On behalf of a local private investor investor

276 assets totalling over 1,336,476 square meters

Bluewater Square Vincentia Marketplace Gladstone Square Redcliffe, QLD Vincentia, NSW Gladstone, QLD 10,067m² 9,405m² 6,897m² On behalf of Elanor On behalf of Woolworths On behalf of Elanor Investment Group Group Investment Group

5 million square metres totalling over $40 billion worth in value

Westfield Liverpool, NSW Westfield Chatswood, NSW Village Cinemas, VIC Regional Shopping Centre Regional Shopping Centre 4,701m² 83,000m² 81,000m² On behalf of Cromwell On behalf of AMP Capital On behalf of Scentre Group

For more information about Colliers International and working with us visit www.colliers.com.au 554 offices in 69 countries on 6 continents

$2.7 billion in annual revenue 2 billion square feet under management 15,400 professionals and staff

OUR RESEARCH EXPERTS Anneke Thompson Leo Lee Kristina Mastrullo Sass J-Baleh National Director Manager Associate Director Associate Director National Office Research NZ Research & Consulting NSW Office Research National Industrial Research +61 412 581 647 +64 212 237 349 +61 422 126 379 +61 468 828 329 Helen Swanson Kate Gray Misha White Quyen Quach Manager Director Manager Senior Research Analyst QLD Research SA Research WA Research WA Research +61 456 441 375 +61 401 610 766 +61 411 333 922 +61 9261 6672 Julie Farmer Liam Knight Manager Database Analyst Newcastle Research Research +61 2 4915 4009 +61 2 9017 6906

Colliers International does not give any warranty in relation to the accuracy of the information www.colliers.com.au contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources www.colliers.co.nz and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. © Colliers International 2018. Accelerating success.