DFO Jindalee Market review and sales potential September 2015 MacroPlan Dimasi MELBOURNE SYDNEY Level 4 Level 4 356 Collins Street 39 Martin Place Melbourne VIC 3000 Sydney NSW 2000 (03) 9600 0500 (02) 9221 5211 BRISBANE GOLD COAST Level 15 Level 2 111 Eagle Street 89 -91 Surf Parade Brisbane QLD 4000 Broadbeach QLD 4218 (07) 3221 8166 (07) 3221 8166 ADELAIDE PERTH Ground Floor Level 1 89 King William Street 89 St Georges Terrace Adelaide SA 5000 Perth WA 6000 (08) 8221 6332 (08) 9225 7200 Prepared for: Riva Ridge Pty Ltd MacroPlan Dimasi staff responsible for this report: Tony Dimasi, Managing Director – Retail James Turnbull, Senior Manager – Retail Adelaide Timbrell, Analyst Table of contents Executive summary i Introduction v Section 1: Outlet centres: Key success factors 1 1.1 History of outlet centre retail 1 1.2 Australian outlet centre experience 2 1.3 Key success criteria 3 Section 2: Centre location, composition and performance 7 2.1 Location and context 7 2.2 Centre composition and trading performance 10 2.3 Recent historical performance 12 Section 3: Trade area analysis 13 3.1 Trade area definition 13 3.2 Trade area population 17 3.3 Socio-demographic profile 21 3.4 Retail expenditure 24 Section 4: Competitive framework 31 4.1 Outlet retail centres 31 4.2 Traditional retail shopping centres 33 Section 5: DFO Jindalee future outlook 35 5.1 Recent retail trends 35 5.2 Current market share and base sales potential 36 Executive summary This report provides an assessment of the market served by DFO Jindalee and a high level analysis of the sales and expansion potential for the centre. The following key points summarise our analysis: • DFO Jindalee is a factory outlet centre located in south-western Brisbane, collocated with the Jindalee Home large format retail centre, which together create a substantial retail precinct with around 40,000 sq.m of retail and ancillary floorspace. • DFO Jindalee occupies a very prominent position on the Centenary Highway, at the Sinnamon Road turn off, which provides convenient access to the south-western suburbs of Brisbane including the growing Greater Springfield and Ripley Valley growth areas, as well as Ipswich. Centre composition & performance • DFO Jindalee contains 16,485 sq.m of gross lettable area (GLA), and included 13,829 sq.m of retail GLA as at June 2015. Since 2011, DFO Jindalee has improved considerably, with tenancy improvements including the introduction of Nike, Adidas, and Kathmandu, which together have strengthened enormously the northern end of the centre’s main mall. • Furthermore, a development application has been submitted to Brisbane City Council for an expansion of the centre of around 2,500 – 3,000 sq.m, which would entail the reconfiguration of existing tenancies as well as 6 new tenancies in a new mall to the east of the centre. We understand that a decision regarding this application is imminent. • DFO Jindalee achieved growth in annual sales of 25% over the period 2011 - 2015, in spite of major expansions at Mount Ommaney SC in 2011/12, and Indooroopilly in 2014/15. Sales increased from $35.9 million to $44.8 million (ex GST), between 2011 and 2015, partly due to an increase in floorspace but also due to improvements in sales per sq.m, as a result of the improved tenant mix. DFO Jindalee i Market review and sales potential Executive summary • Annual gross rent paid by retailers at DFO Jindalee totalled $4.3 million for the year to July 2015, at an average rate of $338 per sq.m, with an addition $0.6 million in gross rent generated from the Goodlife Health Club. Trade area • DFO Jindalee serves a trade area consisting of a large primary sector, two secondary sectors and a tertiary sector, generally including much of south-west Brisbane and Ipswich. The total trade area population served by DFO Jindalee is estimated at 488,400 in 2015, including some 379,100 residents in the main trade area and close to 198,000 residents in the primary sector. • Massive future population growth is expected to occur in both of the secondary sectors, with the secondary south including the ongoing growth in the Greater Springfield area and the secondary north sector undergoing massive urban renewal. • The total trade area population is estimated to increase by almost 50% by 2026, to reach 721,000, reflecting average annual growth of 3.6%. The main trade area population is estimated to grow by 164,500 persons by 2026, an increase of 43%, equivalent to an average annual rate of 3.0%. • The main trade area population is characterised by high income, a young average age, and is predominantly Australian born but relatively ethnically diverse, as compared with the Brisbane average. The overall level of affluence across the trade area is expected to improve in the future as a new, wealthier population establishes in the major greenfield growth areas and in the inner-city urban renewal areas. • Total retail expenditure per capita across the main trade area is slightly above the Brisbane average, but notably per capita expenditure on apparel is about 7 – 8% above the Brisbane average. • The total trade area retail expenditure market is expected to double in size by 2026, from about $6.33 billion in 2015 to $12.8 billion, at an average annual growth rate of 6.6%. DFO Jindalee ii Market review and sales potential Executive summary • The total apparel expenditure generated by the total trade area population in 2015 is estimated at $587 million, including $479 million in the main trade area. The apparel expenditure market is expected to grow by around 6.1% per annum, to reach $1.13 billion by 201, including $898 million in the main trade area. Competition • DFO Jindalee is focused almost entirely on apparel retailing, therefore, the major competition to the centre comprises other relevant outlet centres and major traditional shopping centres with significant apparel offerings. • There are no other major factory outlet centres located within south-western Brisbane, with the only other significant outlet centre in Brisbane being DFO Brisbane Airport, located approximately 25 km north-east of DFO Jindalee. There is only one other outlet centre of any significance in South East Queensland, i.e. Harbour Town on the Gold Coast. • The closest and most relevant regional centres to DFO Jindalee include Indooroopilly SC to the north and Mt Ommaney SC to the south. Both of these centres have undergone major redevelopments over the past 5 years, with Mount Ommaney Centre expanded in 2010 and Indooroopilly more recently, in 2014. In this context, we do not see either centre under-going a major expansion in the foreseeable future. • Orion Springfield, in the secondary south sector is currently undergoing a major redevelopment, which will see the addition of a Target dds, as well as mini-major and specialty floorspace and a new cinema complex. We expect the majority of impacts from this expansion will be absorbed by traditional sub-regional shopping centres like Mount Ommaney SC, Forest Lake and Redbank Plaza. DFO Jindalee iii Market review and sales potential Executive summary Market potential • The available apparel expenditure accessible to DFO Jindalee is expected to grow very strongly in the future, in aggregate volume terms, driven by the massive future population growth in the region. We consider that there is further upside to the recent sales growth achieved by DFO Jindalee, particularly as its reputation improves and new retailers are introduced to the centre. • In our estimations DFO Jindalee currently captures about an 11.5% market share of the available apparel expenditure generated by the primary sector population; an estimated 7.7% market share of apparel expenditure of the main trade area; and an estimated market apparel expenditure market share of 6.6% from the total trade area. • Having regard to estimated growth in the apparel expenditure market across the trade area, and assuming that the centre maintains its market shares, we estimate that the centre could achieve sales in the order of $60 million (ex GST) by 2020. • We consider there is a good opportunity for DFO Jindalee to achieve total retail sales much higher than the figures detailed above, through an improved tenancy mix, increased levels of occupancy of existing floorspace and assuming that the additional 2,500 – 3,000 sq.m of proposed space is developed and tenanted with retail tenants. • Assuming the quality of the tenancy mix can continue to be improved, and with a potential expansion of the retail offering, we consider that the centre can achieve an increase in market share, with a sales potential of around 20 – 25% higher than the ‘base case’, i.e. in the order of $73 – 74 million by 2020. DFO Jindalee iv Market review and sales potential Introduction This report provides an assessment of the market served by DFO Jindalee and a high level analysis of the sales and expansion potential for the centre. The report has been prepared in accordance with instructions from Riva Ridge Pty Ltd, and is structured as follows: • Section 1 reviews the history and evolution of outlet centres in Australia, includes an overview of key success criteria for outlet centres in Australia, and then details the methodology that we have applied to assess the future potential of DFO Jindalee, based on these factors. • Section 2 reviews the local and regional context of the subject site, as well as providing a detailed review of the composition and performance of the centre. • Section 3 examines the trade area served by DFO Jindalee, assessing the current and projected population levels in the trade area; the socio-demographic profile of the trade area population; and the current and future spending levels of the trade area population, with a particular focus on apparel expenditure.