Insight Australian Retail Market February 2014 Savills Research Australian Retail Market

February 2014 Savills Research Insight Insight Australian Retail Market February 2014 Savills Research Australian Retail Market Highlights In seasonally adjusted terms, national retail turnover growth was up 2.9 percent in the 12 months to November 2013. The rate of growth has fallen slightly from 3.2 percent in the year to November 2012. The retail sector faces both cyclical and structural issues. Some cyclical issues are starting to move in its favour. The level of retail construction is showing signs of recovery as capital conditions (both debt and equity) begin to thaw. Savills recorded $6.1 billion of retail property transactions nationally in the year to December 2013, up from $4 billion in the previous year. Institutions were the most active in the investment market for the year ended June 2013 purchasing 61 percent of all retail property sold. 02 February 2014 2013 Highlights during the global financial crisis. With the size of the workforce The Australian workforce has growing and more people coming In times of economic uncertainty grown by almost a million people into the country (and less leaving) retail property is largely regarded from 10.7 million to 11.6 million it is little wonder that a recovery as a defensive investment due from November 2007 to November in housing is underway. It may not to the large percentage of non- 2013. Over the past year we have feel like a boom, but it is starting. discretionary spending supporting shed jobs in Agriculture, Real Credit growth has been rising for income streams, such as food. Estate, Manufacturing, Mining and a year and prices for dwellings are Over the past 25 years, shopping IT. However, we have created twice starting to rise again. as many jobs as we have lost – centres have been increasingly Changes in consumer spending Retail, Healthcare, Government acquired by institutional owners patterns since 2007 appear to and Transport. Over the six years who could actively manage, have had an adverse effect on of the global financial crisis we have develop and maintain these department store, apparel and shed jobs in Manufacturing and centres. The global financial crisis discretionary retailing turnover Agriculture but we have created severely curtailed the purchasing generally. This has impacted five times as many jobs elsewhere. power of institutions and allowed tenants in Regional and some These same trends have been other buyers to enter the market. Sub-Regional shopping centres. present for 30 years (with some Lower turnover combined with The retail sector faces both cyclical bumps along the way). Agriculture increasing rents has led to and structural issues. Some and Manufacturing have been in specialty occupancy costs rising cyclical issues are starting to move the doldrums for 30 years – an to an average of 22 percent (and in its favour. Consumer confidence entire generation – this is not new in some cases substantially higher) is improving, certainly not news. Whilst we have lost 256,000 in Super Regional, Major Regional deteriorating and the cyclical falls in jobs in these two sectors, we have and Regional Shopping Centres. interest rates are certainly helping. created 21 times the same number This is a level that could generally Employment is growing strongly in of jobs in other sectors – a total of be described as unsustainable four or five sectors and shrinking 5.3 million jobs. How much more and any one or combinations of in four or five sectors and the jobs is earned in these newly created three things are likely to happen gained and lost are not necessarily jobs? If workers are paid more, from here. One, occupancy costs in the same physical place. This they put more into superannuation, fall to a more sustainable level; means certain catchment areas are they pay more tax, they spend two, incentives are provided by doing it tough and some are doing more and they pay more for a the landlord to mitigate the high well. house – a virtuous property cycle. occupancy costs; three, turnover The size and shape of the The newly arrived population have increases as consumers return. workforce has a profound impact a profound impact on property In any case, the returns from on retail property because wages because they need somewhere to this sector of retail appear to be determine spending and jobs live and goods to put in it. Instant constrained for the foreseeable define catchment areas. Australia housing and bulky goods demand. future. is almost unique in the world as Less people leaving the country The structural issues facing retail being one of very few countries means fewer houses freed up for are more formidable but not that have expanded their workforce those arriving. “Consumer confidence is improving, certainly not deteriorating and the cyclical falls in interest rates are certainly helping.” Tony Crabb, Savills Research savills.com.au/research 03 Savills Research Australian Retail Market Australian Retail Retail Property Sales ($m and number) Dec-03 to Dec-13 Sales >$5m (LHS) No (RHS) $8,000 250 $7,000 200 $6,000 $5,000 150 $4,000 $3,000 100 $2,000 50 $1,000 $0 0 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source: Savills Research Australian Retail Retail Property Sales by Price Range ($m) “Savills recorded Dec-03 to Dec-13 $6.1 billion of <$10m $10m - $50m $50 - $100m >$100m $8,000 shopping centre $7,000 transactions $6,000 nationally.” $5,000 Savills Research $4,000 $3,000 $2,000 $1,000 $0 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source: Savills Research insurmountable. Savills expect evolve and challenge more categories and more room for the non-mining the retail sector to evolve to take over time. New business models are side of the economy to grow. advantage of the structural issues establishing themselves. One of the rather than be over-run by them. new business models is a “clicks and Savills recorded $6.1 billion of The ageing of the population will bricks” strategy where the store and shopping centre transactions continue to create challenges for the online presence work together to nationally in the 12 months to retailers as they jockey for the drive sales. This strategy is still in its December 2013, up from $4 billion dollars of retirees. Retirees can be infancy in Australia. in the previous year and up on the expected to prefer services over five-year average of $3.5 billion. In Recently, the Reserve Bank of goods and will not necessarily the year to December 2013, 118 Australia has forecast a peak in continue to dwell in their traditional shopping centres were sold against mining investment and has seen catchment areas. Internet retailing 92 the previous year and an fit to cut interest rates to their has already changed the face of increase on the five year average of current level of 2.5 percent. This retailing for certain categories of 86 sales per annum. also reflects ongoing low levels of goods and will no doubt continue to inflation, a steady labour market 04 February 2014 Clearly, both buyers and sellers Important recent ÎÎThe acquisition of were unwilling to transact large transactions include: Greensborough Plaza in Victoria by shopping centres in 2009. The private equity group Blackstone in ÎÎA 50 percent share in Centro uncertainty surrounding the global June 2013 from Australian Prime Bankstown traded in June 2013 for credit crisis left buyers and sellers Property Fund Retail and Lend $284.3 million as aprt of a portfolio paralysed. In 2010, a thaw in Lease Funds Management Limited with a total value of $602 million. The conditions meant both buyers and for a purchase price of $360 million two level Regional shopping centre sellers could transact with greater reflects a market yield in the vicinity has a total GLA of 82,742 square confidence. This is reflected in the of 7.25%. This three level Regional metres. The Centre comprises increase of sales of centres in the shopping centre has a Centre GLA a Myer Department Store, Big greater than $100 million range. of approximately 61,940 square W, target and Kmart Discount metres, comprising a two level Traditionally, the retail property Department Stores. A Woolworths Target Discount Department Store market in Australia has been a two and a Supa IGA are complemented that was previously occupied tiered market, with the majority by 14 mini majors and 120 specialty by Myer, a Kmart Discount of sales volume occurring in the stores. The centre had 8 percent Department Store, Coles and Aldi lower value range and a select few vacant at the time of sale. The supermarkets, an eight screen major retail investment properties passing yield was 7.14%. Parking for Hoyts cinema complex and changing ownership in any given 3,237 vehicles is made possible on a approximately 185 specialty and period. However, it can be seen site of 11.153 hectares. kiosk tenancies. clearly during the height of the ÎÎThe May 2013 purchase of global financial crisis in 2008 and ÎÎIn November 2013, Harbourside the GPT Group’s 50 percent 2009, there was a significant fall in Shopping Centre transacted for interest in Erina Fair Shopping high-end sales. $252 million on an initial yield of Centre on the central coast of 6.48%. The Centre has a GLA of In the 12 months to December NSW reportedly purchased for 19,930 square metres and houses 2007 $2.6 billion transacted in $397.1 million by South Korea’s 11 mini majors, 155 specialty the greater than $100 million National Pension Service.

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