2016 h1 retail rfr

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First Half 2016Australia and New Zealand

Research and Forecast Report

Accelerating success.

Back to the futureLight rail to spur CBD retail growth

Luke Dixon Associate Director | Research+61 417 118 [email protected]

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Back to the future 5

Australian market overview 8

New Zealand market overview 13

CBD retail

Sydney 18

Melbourne 20

Brisbane & Gold Coast 22

Adelaide 24

Perth 26

Centres 28

Large format retail 32

Our experience – Retail 34

Contents

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3Retail | Research & Forecast Report | First Half 2016

St. Collins Lane, MelbourneRetail Leasing on behalf of LaSalle Investment Management

4 A Colliers International publication

Metro OfficeRETAIL

Back to the futureBy Daniel Lees Associate Director | Research [email protected]

After a period of neglect, Australia’s cities are experiencing an infrastructure investment renaissance. Population growth, the need for more dwellings, increasing white collar worker numbers and a preference for inner city living have all led to increasingly concentrated CBD populations. It’s taken a while, but we’re finally starting to realise that in order to move the growing mass of people around our cities more efficiently, better transport systems are needed to overcome the congestion problems that frustrate us all. But haven’t we been through this before? Tram networks used to criss-cross cities such as Sydney but vanished as cars became the main mode of transport. Ironically trams were seen as a cause of congestion. Fast forward to today and light rail systems are being implemented to alleviate the exact same problem.So what does this mean for the retail sector? We argue that while the tram lines of the early to mid 1900s played a role in the interconnectivity of inner city department stores, the improved transport infrastructure of tomorrow will facilitate the growth of inner city retail precincts.

Setting the scene – inner city retail in the 20th century and connectivity of tramsIn the early to mid 1900s cities such as Sydney were lucky enough to possess quite an intricate inner city and metropolitan transport system in the form of tramways. They evolved over time from horse drawn carriages to fully electrified networks, originating from within the inner city but then spanning to metropolitan suburbs in city outskirts.

The high level of inner city interconnectivity achieved by the tram network also served the retail industry of the era very well. In fact if we look at the retail landscape of inner cities back in that time, it becomes apparent just how important that intricate transportation network was. In the early to mid 20th century, Sydney boasted an extensive range of department and home furnishing stores together with fashion boutiques, and not on a small scale mind you. At a conservative estimate, we have accounted for no less than 18 such stores that catered to consumer needs of the era. These weren’t just corner stores, but large scale establishments that in some cases occupied several blocks. Some of the bigger names such as David Jones survived the test of time but many didn’t. The likes of Farmer’s, Walton’s, Curzon’s and Mark Foy’s have vanished for a variety of reason however they prospered at the time, and one of the key reasons was the level of connectivity between them.

Tramways extended from Circular Quay to Broadway, not just down George Street, but down Elizabeth, Castlereagh and Pitt Street too. Lines traversed the city across King Street, but then sprawled further west down William, Park, Oxford and then


down Crown Street. At a time when engineering and technological advancements were crude by today’s standards, the transport infrastructure was quite sophisticated. For some time, overall congestion was low, people moved freely, and this we argue, was a key driver behind the prosperity of inner city retail at that time.

Headwinds for inner city retail and department storesAlas, the free flowing nature of CBDs did not last. Cars became more affordable, and the flexibility they provided individuals made for an easy choice over trams. The once pedestrian friendly streets that created a vibrant, retail friendly lifestyle were at odds with the mass car ownership of the 1950s. This conflict transcended the frustration of individual motorists; it was a central element of competing urban ideologies. Highways and cars had become the international symbol of modernity and progress. Congestion became, just as it has today, a show stopper.

In an ironic turn of events, the government accepted the car lobby’s argument that cars and buses would be faster and more efficient, and the demise of the tram (in Sydney at least) was set in motion. Light rail, the form of transport the government is currently constructing to alleviate congestion, was dismantled in an effort to alleviate the very same problem.

The once prosperous department stores of the time were no longer connected by light rail or pedestrian friendly thoroughfares, and store closures began. Of course it wasn’t just light rail that acted as a catalyst here. In 1959 the first Westfield shopping centre was developed in Blacktown and was followed closely by several other centre openings in metropolitan regions. The “suburban mall” prospered as the need to travel into congested cities was removed. The rest as they say, is history.

Cities growBut even population driven development in Australia’s cities can be restricted. Sydney is constrained geographically by water on one side and mountains on the other, leaving the north and south west as growth corridors.

And while the regional areas are served well by shopping centres, there remains an undeniable preference for inner city living. The demand for inner city housing is made clear by the rapid increase in residential housing values adjacent and within the CBD, together with the removal of CBD office stock for residential conversion.

Meanwhile, Australia’s economic rotation away from mining and toward services has favoured the south eastern states. White collar employment growth is strongest here, most notably within CBDs, and office markets such as Sydney and Melbourne are experiencing strong absorption and falling vacancy.

This dynamic brings with it two very important needs; more efficient transportation and more amenity within CBDs to service growth.

Infrastructure investmentIt’s been a long time coming, but we are now witnessing some meaningful infrastructure projects come to market that intended to alleviate some of the congestion problems encountered in our cities. The various stages of development vary across projects with some under construction and others not yet funded however interestingly, many of these projects incorporate light rail or metro line solutions.

In Sydney, a transformation of the city has begun with construction of the light rail currently underway on George Street and other areas adjacent to the CBD. The light rail is being supplemented by the Sydney Metro project that will extend from Sydney’s North West, through the CBD and then out to the South Western corridor. Both projects are expected to open for initial operation in 2019.

Melbourne is lucky enough to have a well-integrated tram system in operation but there is further development afoot. Currently the City Loop rail network is running at capacity, so to optimise the efficiency of CBD rail transport, the Metro Tunnel will traverse the City Loop, allowing more trains to run into, and out of the city. The project will incorporate five new underground stations, with two of these located in the CBD. Construction will take place between 2018 and 2026.

In Queensland, a plan for a proposed $1.54 billion Brisbane Metro was revealed in January this year, while the Queensland government has labelled the Cross River Rail as its highest priority infrastructure project. Both rail projects are aimed at increasing overall CBD transport efficiencies however funding for both projects has not yet been finalised. In the Gold Coast, stage 1 of the light rail project has been completed, with stage 2 currently under construction. Stage 2 will connect the existing light rail network in the south to Helensvale station.

In Perth, the Metro Area Express (MAX) is a proposed high capacity service running from the CBD to Mirrabooka in the north with the objective of reducing traffic congestion. Construction will commence in 2019 with completion estimated to occur in late 2022.

Warringah Mall Shopping Centre, Brookvale NSWValued on behalf of AMP Capital


Metro OfficeRETAIL

The impact on CBD retailIn our view, these light rail and metro line infrastructure projects will have a positive impact on inner city retail sales over the longer term. The basic premise is that projects such as the Sydney Light Rail will create a smarter infrastructure framework, facilitating more efficient movement of bodies through the CBD. Key CBD arterials are currently under so much stress, that they are actually hindering the movement of retail consumers throughout the city. Once completed, projects such as Sydney’s Light Rail will not only make travelling into the city more appealing, it will facilitate greater levels of foot traffic around CBD retail precincts.

Where will retail grow?The reintroduction of light rail systems in Australia’s CBDs will not only alleviate congestion, it will facilitate the growth of retail precincts as the demand for amenity and retail sites increase. Over the past 5 years, we have witnessed the introduction of many offshore brands to our CBDs as the tastes of domestic consumers evolves. Brands such as Uniqlo, H&M, Zara and Topshop are not asking for 150m of space, they’re asking for 1,500sqm or more, often over multiple floors.

Popular retail precincts such as Pitt Street in Sydney are operating at capacity with close to zero vacancy so catering for these spatial requirements can be difficult. Just as tramways connected major retail establishments of the early to mid 1900s, so too will new light rail projects. Sydney’s core retail precinct will

now be able to stretch away from the crammed Pitt Street along the pedestrian friendly thoroughfares towards Circular Quay in the north and down towards Broadway in the south.

Retail in Melbourne has seen high street offerings being concentrated in the Eastern Core, or Paris end of Collins Street. Other notable offerings have been further north where Bourke Street Mall and Emporium are located. However like Sydney, these areas are operating close to capacity, and there has been a significant inner city apartment development. The growth in retail offerings will follow this path of dwelling development, bridging traditional retail precincts with the evolving Docklands area in the west and the student-focussed residential development in the northern end of the CBD. Residents and shoppers of Melbourne alike have been lucky enough to have an established tram network at their disposal for some time, however, the “Free Tram Zone”, initiated in 2015 will act as a tailwind for retail development as workers, shoppers, tourists and residents move through core precincts more efficiently.

In Brisbane, retail has been concentrated to the core around Queen Street, but development projects such as Queen’s Wharf and the recently announced Brisbane Live project should assist growth in the sector. Importantly, due the scale of these projects, accompanying transport infrastructure becomes integral to their success. Mass transit projects mentioned above such as the Cross River Rail and Brisbane Metro will enable the transportation of thousands of people to and from the precinct within ten minutes.

Mid City, Sydney NSWSold on behalf of Fortius Funds Management


Kennington Village, Kennington VicManaged on behalf of Kennington Commercial PL (Lascorp Development)

Australian market overviewOne could be forgiven for feeling that the retail environment has weakened since our last Retail Research and Forecast Report. It’s hard not to ignore the high profile corporate missteps, together with some economic data releases that point to a sluggish domestic economy. However we caution against adopting a gloomy outlook for retail. In fact we remind readers that there are many aspects of the economy that are supportive of retail and that recent corporate headaches have been a result of strategic error, not necessarily from soft economic conditions.

Consumers will continue to benefit from record low interest rates as the RBA strives to support our economic rotation away from mining and towards services. Indeed since the 1Q16 inflation report came in below expectations, the consensus view is for further rate cuts throughout 2016 and perhaps beyond. Additionally, discretionary spending will be supported by oil prices that are well below 2014 highs, even with the recent rally back to the US$50 mark.

HOUSEHOLD LENDING RATES

Owner-occupier housing loan - standard variable

Owner-occupier housing loan - standard 3 year �xed

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Colliers Edge/Reserve Bank of Australia

BRENT CRUDE OIL PRICE (US$/BBL)

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

$140

2011

2012

2013

2014

2015

2016

Source: Colliers Edge/Reserve Bank of Australia

The rapid appreciation of house prices has tempered a little, as regulatory measures imposed by authorities and lenders take some heat out of the housing market. But even with this softening, house price gains remain positive in all but one state on an annualised basis. There has also been a slight pullback in the construction and acquisition of dwellings, but again this was arguably required, and overall activity remains in positive growth territory.

HOUSE PRICE INDEX (% GROWTH Y/Y)

-10

-5

0

5

10

15

20

25

2010

2011

2012

2013

2014

2015

SYD MEL BRIS ADEL PER AU

Source: Colliers Edge/ABS


Metro OfficeRETAIL

Marina Square, Wentworth Point NSWRetail leasing on behalf of Bilbergia

Business sentiment levels have improved markedly over the last three years, which is crucially important to the consumer economy. The broad recovery in business conditions, particularly in the non-mining and services sectors, has proven a reliable signal of the rebalancing that has also become evident in GDP and employment data.

INDEX OF BUSINESS SENTIMENT

-10

-5

0

5

10

15

2011

2012

2013

2014

2015

2016

Source: Colliers Edge/National Australia Bank

GDP (% GROWTH Y/Y)

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13

Mar

-14

Jun-

14

Sep-

14

Dec-

14

Mar

-15

Jun-

15

Sep-

15

Dec-

15

Mar

-16


While wage growth remains elusive, the broader employment figures remain encouraging with recent releases coming in on the higher side of expectations. This upside surprise in employment is nudging the jobless figure lower which equates to a two and a half year low, and the aggregate spending propensity of the consumer economy is improving. The mix of employment could be better as the current composition is skewed toward part time as opposed to full time work. Pleasingly, the participation rate improved toward the end of 2015, although we concede this has slipped lower in the early stages of 2016.

WAGES EXCLUDING BONUSES - GROWTH Y/Y (%)

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16


NATIONAL LABOUR MARKET

64.0

64.2

64.4

64.6

64.8

65.0

65.2

65.4

65.6

65.8

66.0

4.5

4.7

4.9

5.1

5.3

5.5

5.7

5.9

6.1

6.3

6.5

Apr-

2011

Oct

-201

1

Apr-

2012

Oct

-201

2

Apr-

2013

Oct

-201

3

Apr-

2014

Oct

-201

4

Apr-

2015

Oct

-201

5

Apr-

2016

National Unemployment Rate National Participation Rate (RHS)


The combination of lower interest rates, improving business sentiment and lower unemployment has led to a spike in consumer confidence. In its May release, the Westpac-Melbourne Institute index experienced the highest one month gain since July 2010 and is approaching the upper end of its two year range. We note that consumer confidence can be very fickle, with the household sector at the mercy of a number of cross currents such as global geopolitical uncertainty and volatility in financial markets.

INDEX OF CONSUMER SENTIMENT

85

90

95

100

105

110

115

May

-11

Nov-

11

May

-12

Nov-

12

May

-13

Nov-

13

May

-14

Nov-

14

May

-15

Nov-

15

May

-16

Source: Colliers Edge/Westpac-Melbourne Institute


Retail sales analysisThe most recent data released by the Australian Bureau of Statistics indicate that national retail sales continue to grow at a 3.60 per cent annualised rate, just below the rolling ten year average. Given the nation’s rotation toward the services orientated sectors, it’s unsurprising that retail sales are strongest within the south eastern states. New South Wales and Victoria, now boast annualised growth rates of 4.95 per cent and 4.30 per cent respectively, comfortably exceeding the national average. Retail sales growth in resource orientated economies of Queensland and Western Australia is less impressive at 1.20 per cent and 2.04 per cent respectively.

RETAIL SALES TURNOVER – SEASONALLY ADJUSTED

0%

1%

2%

3%

4%

5%

6%

7%

Apr-

13

Jul-1

3

Oct

-13

Jan-

14

Apr-

14

Jul-1

4

Oct

-14

Jan-

15

Apr-

15

Jul-1

5

Oct

-15

Jan-

16

Apr-

16

% g

row

th p

.a.

Retail sales growth Rolling 10Y ave


In terms of category analysis, the recent unusually warm weather appears to have delayed purchases in autumn and winter apparel, with clothing sub-category sales slipping to a growth rate of 4.4 per cent y/y (down from 9 per cent y/y in March). We don’t think that the decline in retail sales felt in April’s data is the start of a sustained slowdown, but more due to seasonal factors. The interest rate cut in May should support overall spending moving forward.

RETAIL SALES BY STATE – APRIL 2016

4.95%

4.30%

1.20%

3.41%

2.04%

5.85%

1.60%

0%

1%

2%

3%

4%

5%

6%

New SouthWales

Victoria Queensland South Australia WesternAustralia

Tasmania NorthernTerritory

% g

row

th p

.a.

State growth (%) National growth (%)


The headline Food category represents 40 per cent of total retail sales, with an annualised growth rate of 2.4 per cent. Since late 2014, growth in overall food sales has been subdued due to food price deflation dynamics brought about by intense levels of competition amongst supermarket retailers. With competition levels expected to remain high amongst key players in the industry, we expect growth in this segment to remain subdued.

RETAIL SALES BY CATEGORY – APRIL 2016

2.37%

3.01%

4.43%4.76%

3.60%

5.80%

0%

1%

2%

3%

4%

5%

6%

Food Cafes &Restaurants

Other Clothing &Footwear

Dept Stores Household Goods

% g

row

th p

.a.

Category growth (%) National growth (%)


The Household Goods category currently accounts for $4.4 billion or 18 per cent of national retail sales volume, and has benefited greatly from Australia’s housing market boom. Sales growth within the sector currently sits at 5.8 per cent, down from recent highs of over 11 per cent in mid-2015, although we note that the category is still outperforming overall national retail sales growth. Following the significant amount of change in housing ownership that has occurred over the past few years, the lagged effect of home renovations should assist retail sales volumes within the Household Goods sector to continue.

Growth in Department Store sales has been quite volatile through the period from 2009 – 2015, although in general terms, annualised growth rates have been more impressive through the course of 2015 - 2016. The improved growth coincides with the introduction of turnaround strategies at both of Australia’s key department store players; David Jones and Myer, and we expect a choppy recovery to continue from here.

Cafes & restaurants account for 14% of total retail sales volumes, and sales attributed to the sector currently sit at approximately $3.5 billion, up from approximately $2.5 billion in 2009. While the current rate of sales growth in this sector is only 3 per cent, we expect sales to growth over the medium term, as Australia’s economy rotates further towards services and a devaluation of the Australian dollar acts as a tailwind for the tourism sector.

Hinkler Central, Bundaberg QldSold on behalf of Mirvac Funds Limited


Metro OfficeRETAIL

Retail market review

ASSET TYPE MARKET PRIME GROSS FACE RENTS PRIME INCENTIVES PRIME YIELD RANGE

PRIME YOY % CHANGE PRIME LOW HIGH

CBD

Sydney $9,250 5.7% 11% 4.45% 6.50%

Melbourne $7,500 -3.5% 6% 4.50% 5.50%

Brisbane $4,400 -2.2% 10% 5.75% 7.25%

Perth $3,780 -2.8% 12% 5.50% 6.75%

Adelaide $3,100 0.0% 17% 5.50% 6.75%

REGIONAL

Sydney $1,700 1.5% 13% 4.75% 6.50%

Melbourne $1,689 0.8% 5% 5.00% 6.25%

Brisbane $1,500 3.2% 12% 5.25% 6.25%

Perth $1,508 -3.3% 13% 5.50% 6.50%

Adelaide $1,613 2.4% 10% 5.25% 6.50%

SUB REGIONAL

Sydney $1,288 1.0% 15% 5.50% 6.75%

Melbourne $1,005 4.6% 13% 6.00% 7.00%

Brisbane $1,110 0.9% 20% 6.25% 7.00%

Perth $838 -11.8% 13% 6.25% 7.25%

Adelaide $965 -1.0% 20% 7.50% 9.25%

NEIGHBOURHOOD

Sydney $990 0.3% 15% 6.10% 7.40%

Melbourne $743 5.1% 12% 6.00% 7.00%

Brisbane $750 15.4% 20% 6.00% 7.25%

Perth $650 -10.3% 13% 6.25% 8.00%

Adelaide $540 -1.8% 17% 6.75% 9.00%

LARGE FORMAT RETAIL

Sydney $460 5.7% 8% 5.15% 9.73%

Melbourne $255 -2.9% 13% 7.50% 10.00%

Brisbane $350 2.9% 23% 7.75% 8.75%

Perth $190 -5.0% 14% 7.50% 9.50%

Adelaide $225 7.1% 11% 8.00% 9.50%

Retail Market Indicators - Q1 2016

Retail market conditions have been mixed across states, reflecting in part the ABS sales data trends.

Within the CBD markets, 1Q16 data suggests that rental growth has been strongest in Sydney while incentive levels across almost all cities has remained broadly unchanged. CBD sales activity through to 1Q16 confirms this trend, with yields remaining the sharpest in Sydney and Melbourne, however we note that all CBDs have experienced yield compression on an annualised basis.

Shopping centre dynamics are more diverse, although it appears that across centre categories, rental growth was weakest in Perth. Data through to 1Q16 suggests that centre incentive levels

have moved a little higher, particularly within the sub-regional category although the quantum of movement remains in the low single digits. Shopping centre yields compressed across all cities and categories on an annualised basis with the only exception being Perth regional centres where there was no movement over the year to 1Q16. Across centre categories yields are generally sharpest in Sydney in Melbourne while remaining higher in Perth and Adelaide.

Large format retail experienced some rental growth with the strongest annualised gains taking place in Sydney and Adelaide. Incentives over the year have remained broadly stable although


there have been slight increases in Melbourne (+3%y/y) and Perth (+4%y/y). Large format yields have compressed further with the strongest activity taking place in Sydney.

Overall investment volumes have risen swiftly in the 2016 calendar year to date and now sit at just under A$3.3 billion. While still a long way off the heady volumes of 2015, investor demand for retail assets remains strong. The decision by institutions such as Vicinity Centres and Blackstone to recycle capital have lifted overall transaction volumes and a disposal of the Masters business (once a structure is finalised) could see a continuation of this trend.

RETAIL INVESTMENT VOLUMES

$-

$1

$2

$3

$4

$5

$6

$7

$8

$9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$A b

n

Source: Colliers Edge

The supply of retail floor area increases from 429,000sqm in 2016 to a peak of just over 580,000sqm in 2017. This supply is concentrated to shopping centres and large format assets across New South Wales and Victoria. Overall retail supply levels taper

from 2017 onward with 500,000sqm, 153,000sqm and 74,000sqm being delivered in 2018, 2019 and 2020 respectively. Supply is weighted toward shopping centres, with Queensland and New South Wales being the main recipients in 2018.

RETAIL SUPPLY BY STATE

0

100

200

300

400

500

600

700

2016 2017 2018 2019 2020 2021 2022 2023

'000

sqm

ACT NSW NT QLD SA TAS VIC WA


RETAIL SUPPLY BY ASSET TYPE

0

100

200

300

400

500

600

700

2016 2017 2018 2019 2020 2021 2022 2023

'000

sqm

CBD LFR Centres


Forestway Shopping Centre, Sydney NSWSold on behalf of GPT Wholesale Shopping Centre Fund


Metro OfficeRETAIL

New Zealand market overviewBy Chris Dibble Director | Research & Consulting [email protected]

Roll up, roll upRetailers are eyeing up the continued record high net permanent and long-term migrant growth as a necessary requirement for further profitability. Simply, more people means more spending, and for many more locations, more house price growth. The latter point has also been assisted by the Reserve Bank of New Zealand’s latest LVR changes sprung on Auckland investors, who are moving to the regions.

While not all retailers are experiencing the same levels of profitability, and some barriers to frivolous spending have crept in, the sector overall is more content with the current situation. Retailers are grappling with the multitude of new requirements in this ‘new-normal’ market driven by an extended period of economic prosperity. This is helping the owner-occupier market as well as investors who are keen to make the most of the gains from rent rises and capital value appreciation.

Keep the customers happyNew Zealanders are back to their old habits of spending more than they earn. Rising credit growth coupled with rising house

prices are a happy sight for many retailers. They know that new furniture, appliances and more gardening and building supplies will be top of the shopping list.

Although Aucklanders have long been in the driving seat of this phenomenon, renewed house price growth outside of Auckland has lifted a nation of retailers’ spirits. The May 2016 ANZ-Roy Morgan consumer confidence index came in at a seasonally adjusted 115, fractionally lower than 117 in April, but still a happy bunch overall.

Also of note from the survey was that Wellington has taken first spot in the confidence rankings, knocking Auckland off the top spot. A slight rise in cautiousness has crept in from consumers as petrol prices start to edge up again and lower interest rates for savers rather than borrowers dampen expectations of the remainder of the population who don’t own a home.

On a more positive note, our extraordinary population growth has kept sectors ticking along like the food and beverage industry and some clothing and apparel retailers. Employment numbers are also positive, albeit not all new migrants have jobs yet. Real income and wealth is rising quicker than expected due to the sustained low inflation environment.

Of course, low inflation has limited retailers’ ability to increase prices to have a slightly more profitable margin on costs. This means retailers still need to go to many lengths to keep customers happy.

Coastlands Shoppingtown, Wellington NZManaged on behalf of Sheffield Properties Ltd


Westfield Glenfield, Auckland NZSold on behalf of Scentre Group

More than before, retailers need to rely on greater sales volumes, building on-going trust and loyalty with their customer base, keeping customers engaged with experiences and convenience all the while servicing them through multiple channels. After eight years of this ‘new-normal’ environment for retailers, many have grasped the concept. Higher success rates are lifting retail out of being one of the toughest industries for long-term success.

FIGURE 1: ANZ-ROY MORGAN CONSUMER CONFIDENCE INDEX

80

90

100

110

120

130

140

150

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Inde

x

Source: ANZ/Roy Morgan

Time for change?The latest survey on retail spending from Statistics New Zealand highlights Aucklanders’ influence on the retail sector. In the March 2016 quarter, Auckland retailers took home 37 per cent of all spending in New Zealand, up from 33 per cent only four years ago. Outside of Canterbury, the remainder of New Zealand is either flat or reducing in market share. But could this be about to change?

FIGURE 2: RETAIL TRADE SURVEY BY LOCATION

33%

11%

11%

20%

13%

12%

37%

9%9%

20%

14%

11%

Auckland

Remainder NI

Waikato

Canterbury

Wellington

Remainder SI

Mar-12 quarter (Inner ring)Mar-16 quarter (Outer ring)

Source: Colliers International Research/StatsNZ

Tourism has overtaken the dairy sector as the number one contributor to GDP in New Zealand. Although the majority of tourists fly into Auckland Airport or disembark from their cruise ships in Auckland, many hit the regions to experience the myriad of spectacular sights and experiences the country has to offer. Accommodation occupancy rates across all regions are strong, and there are no signs that this is slowing despite the cyclically high New Zealand dollar. Summer capacity was running at an

all-time high, leading Tourism New Zealand to put all of their marketing funds towards the off-peak ‘shoulder’ seasons of autumn and spring to assist with dispersing the extraordinary levels of demand. This will likely extend the travel periods and assist retailers greatly. Add to this local spending rises as house prices outside of Auckland are now at or nearing double-digit growth rates, we expect Auckland’s market share to reduce, albeit still keeping its first place spot.

Started low, watch it growIn 2016, many retailers are in a much happier space than a few years ago, despite trading conditions remaining challenging. The underlying confidence, driven by better economic conditions, along with competition from investors pushing up prices, means higher rates of rent rises are approaching.

Nationally, most markets are seeing rising rents for prime quality premises and a plateauing in rents for secondary quality premises. At this stage the growth has been relatively muted. Where population is increasing the most, is where rents are rising the most, and vice-versa.

The impact of population - from residents, tourists and workers - has been a notable feature in Auckland’s CBD, which now holds the country’s most expensive retail precinct with an average net prime rent of $2,950/sqm. By comparison, large format rents in the Auckland suburbs are typically a tenth of the cost. Wellington CBD average prime gross rents are at $1,270/sqm, which is substantially lower than Auckland, but also on the rise. Auckland CBD prime net rents increased by around 12 per cent over the past year. Wellington CBD prime gross rents increased by five per cent, higher than many preceding years with the double whammy of a persistently low inflation rate increasing the real rate rise. This will be exacerbated as the pace of retail rents rise and inflation rates stay low.


Metro OfficeRETAIL

Investors want more retail to buyIn 2015, the retail sector accounted for almost a quarter of all property sales activity. This was steady across most price bands (see figure 4). Although this is second spot behind the industrial sector, there are a higher number of opportunities to purchase industrial properties than retail.

In the less than $2 million price band, which accounts for 85 per cent of all of New Zealand’s commercial property activity, almost 1,100 sales were recorded in retail. If more had been brought to market there would have undoubtedly been more sales to tally. Over the past eight years around 1,000 to 1,200 sales per annum have been recorded compared to 1,600 to 2,100 sales per annum between 1999 and 2007. Further evidence of the competition for a lack of sales stock has been the firming in retail yields over the past 12 months. In Auckland and Wellington retail yields firmed by an average of 16 basis points, 20 basis points, and 10 basis points for the CBD, bulk retail and regional centre sectors respectively.

At the other end of the scale, 60 retail properties sold for more than $5 million in 2015, which was the second highest number of sales, and the third highest in aggregate values at just under $1 billion.

This year, a number of high profile retail property sales are settled or expected to settle soon including the two former Westfield shopping centres, Zone 7 in Westgate, the half share of The Base, Centre Place South, Shore City, Pukekohe Mega Centre, a national Progressive Enterprises portfolio and Papamoa’s Fashion Island to name a few. These sales combine to more than $1 billion in sales activity already.

This level of activity will likely place 2016 as the second highest year across all retail property values, but still some way off the $3.2 billion year in 2014 after major purchasing activity in New Zealand for the first time by GIC and PSP Investments.

FIGURE 4: 2015 NATIONAL SALES ACTIVITY BY SECTOR AND PRICES

411 45 36

536 53

57

1084 95

60

2033 21599

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$<2m $2m-$4.9m $5m+

Prop

ortio

nof S

ales

Commercial Mix O�ce Retail Industrial

Source: Colliers International Research/CoreLogic

REGION 2013 2023 2033 2043% CHANGE BETWEEN

2013 & 2043

PEOPLE CHANGE BETWEEN

2013 & 2043

QUEENSTOWN-LAKES DISTRICT 29,700 37,300 44,000 50,600 70% 20,900

AUCKLAND 1,493,200 1,767,500 2,010,500 2,229,300 49% 736,100

TAURANGA CITY 119,800 138,100 155,600 172,100 44% 52,300

HAMILTON CITY 150,200 174,100 194,200 212,900 42% 62,700

CHRISTCHURCH CITY 356,700 393,100 417,800 436,800 23% 80,100

NEW PLYMOUTH DISTRICT 77,100 84,800 90,000 93,800 22% 16,700

WHANGAREI DISTRICT 83,700 90,900 96,200 99,800 19% 16,100

PALMERSTON NORTH CITY 83,500 89,600 94,700 98,800 18% 15,300

NELSON CITY 48,700 52,800 55,000 55,900 15% 7,200

WELLINGTON REGION 393,700 418,900 435,600 444,100 13% 50,400

NEW ZEALAND 4,442,100 4,948,800 5,338,300 5,639,000 27% 1,196,900

Source: Colliers International Research/StatsNZNote: Projections are from Census 2013

FIGURE 3: SELECTED REGIONS OF POPULATION GROWTH


MACQUARIE STREET

BLIGH STREET

BRIDGE STREET

CAH

ILL

EXPR

ESS

WAY

PHILLIP STREET

COLLEGE STREET

WIL

LIAM

STR

EET

OXFO

RD ST

REET

PARK

STR

EET

BATH

URST

STR

EET

LIVE

RPOO

L ST

REET

GOUL

BURN

STR

EET

HAY

STR

EET

DRUITT STREET

MARKET STREET

KING

STR

EET

ERSKINE STREET GROSVENO

R STREET

MAR

TIN

PLAC

E

HUNT

ER S

TREE

T

YOUNG STREET

LOFTUS STREET

GEORGE STREET

YORK STREET

CLARENCE STREETKENT STREET

SUSSEX STREET

PITT STREET

CASTLEREAGH STREET

ELIZABETH STREETWENTWORTH

AVENUE

EDDY

AVE

NUE

HYDE PARK

6

16

13

15

17

17 17

12

5

4

10

11

14

14

14

7

1218

3

9

8

LegendDepartment stores

Old tram lines

City Core

Midtown

Western

Southern

Sydney Tram Network – Early to mid-1900s


MACQUARIE STREET

BLIGH STREET

BRIDGE STREET

CAH

ILL

EXPR

ESS

WAY

PHILLIP STREET

COLLEGE STREET

WIL

LIAM

STR

EET

OXFO

RD ST

REET

PARK

STR

EET

BATH

URST

STR

EET

LIVE

RPOO

L ST

REET

GOUL

BURN

STR

EET

HAY

STR

EET

DRUITT STREET

MARKET STREET

KING

STR

EET

ERSKINE STREET GROSVENO

R STREET

MAR

TIN

PLAC

E

HUNT

ER S

TREE

T

YOUNG STREET

LOFTUS STREET

GEORGE STREET

YORK STREET

CLARENCE STREETKENT STREET

SUSSEX STREET

PITT STREET

CASTLEREAGH STREET

ELIZABETH STREETWENTWORTH

AVENUE

EDDY

AVE

NUE

HYDE PARK

6

16

13

15

17

17 17

12

5

4

10

11

14

14

14

7

1218

3

9

8

Department store name1. Farmer’s

2. Waltons

3. Curzon’s

4. Snow’s

5. Buckingham’s Department Store

6. Grace Brothers

7. David Jones

8. Millinerey Hat Store

9. Nock & Kirby

10. Gowings

11. McCathie’s Dresses

12. Winn Department Store

13. Anthony Hordern & Sons

14. F Lassetter & Co

15. JA Booth & Co

16. Marcus Clark & Co

17. Mark Foy’s

18. Morley Johnson


By Sas Liyanage Research Analyst | Research [email protected]

Feeding the population surge The Sydney CBD retail market is lifting on the significant infrastructure and commercial development. Indeed, Sydney’s labour market has vastly improved as it spearheads Australia’s new era of services dependent growth. This CBD is forecasted to employ an additional 28,788 workers in the forthcoming five years, according to Deloitte Access Economics. In this period, the Sydney LGA domiciled population is expected to increase by 20,700 persons, according to NSW Planning & Environment projections. Over 400,000sqm of commercial floorspace has currently commenced, or mooted, for conversation to residential and hotels use in the next fice years. Furthermore, over 4,600 apartments at an average size of 75sqm are scheduled for completion in this period. According to APM data, the median price for units in the CBD has increased by 36.8 per cent since 2013, from $737,500 to $920,000.

All these changes will have a substantial impact on a constrained retail supply. Most importantly, the nature of demand for CBD retailing will shift. Firstly, given the higher median price, the wealthier demographic will possess a greater propensity to spend. Secondly, the smaller average size of units in the pipeline will encourage occupants to devote a lower proportion of time inside their dwelling. The substantial conversation to residential and hotel use will keep people in the CBD beyond business hours- driving the night time economy. Finally, the direct impact a larger CBD population will likely activate the sounding areas. It’s no wonder that food retailing has surged. Restaurateurs have scrambled to secure locations to feed this increasing population. For example the Quadrant Private Equity, who recently purchased Fratelli Fresh, is looking to feed its growth through public listing.

New Sydney CBD restaurants players:• Indu

• Mercado

• Hubert

• Kitchen by Mike

• Da Orazio

• David Thompson’s interpretation of Nahm

• Saki Jnr

• Kensington Street Social

• Automata

SYDNEY CBD EMPLOYMENT GROWTH

270,000

280,000

290,000

300,000

310,000

320,000

330,000

340,000

350,000

360,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Sydn

ey C

BD e

mpl

poym

ent g

row

th

Forecast

Source: Colliers Edge/Deloitte Access Economics

SYDNEY CBD RETAIL

580 George Street, Sydney NSWRetail leasing on behalf of GPT

First Half 2016



Metro OfficeRETAIL

The George Street revivalThe newly commenced transportation projects will create an uplift in the surrounding catchments. Locations along the new George Street light rail corridor, for example, have already received high levels of interest. Once completed, George Street store fronts will soon retain far higher levels of foot traffic. Corridors like Pitt Street Mall - which attract high levels of foot traffic receive a median rent range of $10,000-$14,000/sqm; with Vodafone recently signing at $17,000/sqm. George Street rents have already climbed from $3,000-$3,500/sqm to above $5,000-$5,500/sqm. The eventuating increase in foot traffic and higher levels of amenity are expected to narrow this rental gap. Also on George Street, Charter Hall’s new development, 333 George St, is understood to have secured HSBC and NAB retail banking for its ground floor retail, and Woolworths for its basement. Similarly, at 580 George Street Tim Ho Wan, Guylian and Movenpick ice-cream have all opened following a $25 million refurbishment. Flight Centre will open its largest stores at 478-480 George Street. The 64sqm sapce can accomodate up to 60 consultants, 10 times higher than their traditional stores. And now ISPT and Brookfield are expected to soon trigger their respective developments at 345 George Street and 301 George Street.

Pushing the prime boundaries Retailers are now looking to push past the traditional borders such as Pitt Street Mall. Global new entrants, in particular, who sought prime spaces of 1,500sqm all above were left without many options. By example, H&M occupied close to 5,000sqm at the

1 Martin Place, Sydney NSWRetail leasing and managed on behalf of Far East Organization

Glasshouse last year. Nonetheless these global luxury retailers, who choose Westfield as a foothold into the market, are now pursuing prime locations outside the centres. Demand for spaces along Castlereagh Street - once regarded the main high street, have now flowed to adjacencies; with MLC being the ‘hinge” then down King Street. In addition to this, tenants displaced from the Metro Line project must now look for new homes. This includes Tiffany & Co, which will be pushed out of 39 Martin Place. It’s understood Sussan and Sportsgirl are looking for spaces following their displacements by Zara Home and Microsoft,too.

A concentrated story of investment The momentum in investment sales has continued into the year. A 75 per cent stake of the Mid City Centre was sold to the Cheng family for a yield of 4.6 per cent on behalf of Fortius Wealth Management. Late last year ISPT purchased a 50 per cent interest in World Square shopping complex and car park for a sharp yield of 4.65 per cent. Pundits now await the outcome of David Jones store at 77 Market Street, which was put up for sale by the South African Woolworths group. The said frontrunner ‘Scentre Group’ could potentially amalgamate the food court with its own at Westfield Sydney. Earlier in the year, Brookfield sold their leasehold interest of the King Street Wharf restaurant precinct to La Salle Management at a yield of six per cent. The $90 million sale included 13 restaurants and bars. This sale reflected the wider growth in the CBD food retailing and the anticipated uplift from the completion of the Barangaroo projects and adjoining works.


By Anneke Thompson National Director | Research [email protected]

MelbourneThe opening of St Collins Lane in May 2016 has filled a vacuum in the super prime retail precinct of the CBD, meaning that shoppers in the CBD now have continuous retail options through a central spine starting at Flinders Street Station right through to Melbourne Central Station. St Collins Lane is home to a number of Australian first stores including Sandro, Reiss, Maje, Zadig and Voltaire and L’Agent. Other major labels in St Collins Lane include Coach, Tag, The Kooples, Rodd and Gunn, Politix and MJ Bale.

St Collins Lane has also attracted an influx of enquiry from premium fashion brands looking to co-locate in the area. This should further boost foot traffic in the retail core.

The opening of St Collins Lane has reduced vacancy from 6.2 per cent to 5.2 per cent. There are still a number of vacant shopfronts in Howey Place, but the increase in foot traffic may help fill this vacancy over the coming six to 12 months.

Outside of the retail core, there is strong demand from local fashion brands looking to expand into non-core areas, particularly the western core and eastern precincts. Some of the major brands looking to expand into these areas who were previously more focussed on core retail locations are MJ Bale, Rhodes & Beckett, Herringbone, Wittner, Roxanne and Peter Jackson.

The most recent transaction in the retail market has been the sale of the Myer Family’s 33 per cent interest in Myer Melbourne for $148.5 million. In addition, the four level freehold property that is home to Melbourne’s Spaghetti Tree restaurant and Madam Brussels rooftop bar changed hands for just under $10 million. Situated on a 498sqm site, the building offered a current net income of approximately $320,467 and was sold on a passing yield of 3.27 per cent in late December 2015. The Fletcher

MELBOURNE CBD RETAIL

First Half 2016


St. Collins Lane, Melbourne VicRetail Leasing on behalf of LaSalle Investment Management


Metro OfficeRETAIL

Jones Building on the corner of Flinders and Queen Streets and currently tenanted by streetwear label Culture Kings, has also sold, but this time to a developer. The site is permitted for a 25 storey tower of 72 apartments and penthouses. The site sold to a local development syndicate in February 2016 for $18 million. Culture Kings has a lease until January 2017.

St Collins Lane and the adjoining Novotel Hotel are currently on the market, and if the sale is transacted will be one of the largest retail transactions the Melbourne CBD has seen for some time. The two sites are expected to fetch around $400 million.

Chapel Street, South Yarra and PrahranWhile the CBD undergoes retail expansion, with numerous overseas brands making their Melbourne home there, the face of Chapel Street is also changing. Chapel Street has long been the epicentre of retail trade in the inner eastern suburbs, however, major competition is now ingrained in the retail fabric of the east, namely High Street, Armadale, which attracts high end brands and bridal wear in particular, and Chadstone Shopping Centre, the ever expanding shopping mecca of Melbourne’s eastern suburbs. Chapel Street now routinely has to compete with these two shopping precincts for both retailers and foot traffic. In the long term, however, Chapel St should benefit from increasing local resident foot traffic as major luxury apartment developments are completed. The strip will therefore continue to undergo a rebirth as a food and beverage precinct, particularly the traditionally cheaper, Windsor end of the strip (between High Street and Dandenong Road).

Rent

567 Collins Street, Melbourne Vic Retail leasing on behalf of Leighton & Investa

Retail Store/Restaurant

1. Capitol Grand (under construction)

2. COMO Centre

3. Country Road

4. Village Cinemas

5. Jam Factory

6. Topshop

7. Prahran Central

8. Woolworths

9. Coles

10. Dan Murphy’s

11. Morris Jones

12. Fonda Mexican

13. Mr Miyagi

14. Hawker Hall

15. Tokyo Tina

16. The Railway Hotel

GREVILLE STREET

WINDSOR STATION WINDSOR STATION – STOP 43

PRINCES HIGHWAY/DANDENONG ROAD ROUTE 5 AND 64

PRAHRAN STATION

SOUTH YARRA STATION

PRINCES HIGHWAY

HIGH STREET

TOORAK ROAD

COMMERCIAL ROAD MALVERN ROAD

CHAP

EL S

TREE

T

1 2

3

4

6

5

78

9

10

11

12

1314

16

15

DUKE STREET– STOP 44

CHATHAM STREET– STOP 46

MALVERN/COMMERCIAL ROAD – ROUTE 72

WILSON/CLIFF STREET– STOP 48

TOORAK ROAD/CHAPEL STREET– ROUTE 8

ARTHUR STREET – STOP 49

HIGH/CHAPEL STREET– ROUTE 6

PRECINCT NET FACE RENT (PER SQM)

South Yarra $1,200 to $1,500

Prahran $700 to $800

Windsor $750 to $850

Incentives 8% to 10% (whole precinct)

LEGENDRetail Store/Restaurant

Train stop

Train stop

Train line

Tram line

Windsor precinct

South Yarra precinct

Prahran precinct


As space, particularly in super prime locations, remains at a premium whilst space remains tight, particularly in super prime locations, many new enquiries specify a preference for two or more story tenancies. This trend is a driven by a number of reasons including; a lack of available space (particularly in the mall and along Edward street), to minimise rent levels for items that have lower margins and to accommodate back of office operations.

As Brisbane’s retailing market continues to mature, food retailing has become more sophisticated. The past six months has seen the continued emergence of superior casual dining precincts, particularly surrounding the Post Office Square precinct.

In the short term, we’re expecting the majority of retailers to take a consolidation approach. A number of substantial developments including the W Hotel at the former site of the State Law Courts on George Street and the Queens Wharf precinct are expected to be the focus of the next round of leasing enquiry.

By Peter Willington Manager | Research [email protected]

BrisbaneThe Brisbane CBD retailing landscape has changed substantially in the last six months. The completion of two major redevelopments; the Brisbane Arcade and the Regent Theatre redevelopment have accommodated a number of new international entries into the Brisbane retail market. In the last six months Zara, Uniqlo and H&M have joined Top Shop in the CBD precinct to create and further enhance the precinct as a fast fashion destination. Based on the success the new entrants have had in initial trading, enquiry has substantially increased from international retailers; however, finding accommodation for these retailers remains a challenge.

Burleigh Beach Pavilion, Qld Retail leasing on behalf of Conias Corporation and Morgan Stanley

BRISBANE CBD & GOLD COAST RETAIL

First Half 2016



Metro OfficeRETAIL

Gold CoastThe Gold Coast retail market has begun to show the first signs of recovery. Underpinned by positive expectations of increased tourism volumes in the short to medium term and by the 2018 Commonwealth Games, owners are making significant investments in redeveloping, extending and refurbishing centres. Completed and future projects include the completed extension of the Pacific Fair Shopping Centre, now the largest shopping centre in Queensland, the planned redevelopment of the Oasis Shopping Centre in Surfers Paradise and the extensive refurbishment of the Jupiters Casino in Broadbeach.

Domestic and international tourism is returning as the fall of the Australian dollar has increased the attraction of Australia for international tourists while encouraging growth in domestic tourism. Additionally, new airlines is now flying directly to the Gold Coast, including Air Asia that are now flying daily services between Kuala Lumpur, Gold Coast and Auckland and Hong Kong Airlines that have extended their seasonal charter flights to year round services. The increase in tourism is reflected in passenger numbers; a record six million passenger movements were recorded at the Gold Coast Airport in the 2015 calendar year.

GOLD COAST AIRPORT PASSENGER MOVEMENTS CHART

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16

Dommestic Arrivals Domestic Departures International Arrivals International Departures

Source: Colliers Edge/Gold Coast Airport Pty Ltd

With increased tourism and consumer sentiment, many operators are anecdotally reporting that turnovers are up, year on year, by over 10 per cent and the consensus amongst retailers is that further upside remains as tourism numbers increase.

Buoyed by positive expectations, luxury retailers have been attracted to the Gold Coast market. Recent deals include Hermes who are re-entering the Gold Coast market and Chanel that are entering the Gold Coast market for the first time.

Major infrastructure spending is occurring on the Gold Coast to accommodate the Commonwealth Games along with rapid population growth. The central infrastructure project is the Gold Coast Rapid Transit. Stage two of the project from Helensvale train station to the existing light rail network at the Gold Coast University Hospital is currently out to tender with the successful bidder expected to be announced before the end of the fiscal year.

Runaway Bay Shopping Village, Runaway Bay QldSold on behalf of Vicinity Centres


By Kate Gray Associate Director | Research [email protected]

Adelaide CBD sees two major salesRundle Mall has seen record sales activity with two major assets changing hands. The sale of the Myer Centre to Starhill for $288 million and the sale of Rundle Place & 80 Grenfell Street to Blackstone for $400 million. Rundle Place was the sale of both the retail component and 80 Grenfell – an office building. Both of the purchasers are offshore investors which indicates a level of confidence in the Adelaide retail market. The Rundle Mall precinct is a tightly held precinct and rarely traded, and therefore sales volumes are more dependent on the availability of stock with demand for assets in this precinct attracting strong enquiry.

The Wallis Building, SARetail leasing on behalf of The Wallis Group

Adelaide CBD Retail VacancyRundle Mall facing accommodation has seen vacancy increase slightly with a vacancy rate of 4.6 per cent, up from 3.3 per cent six months ago. There has been limited development along Rundle Mall, although there are several stores which have undergone refurbishment. Kathmandu, Platypus, Flight Centre, Sketchers, Lorna Jane and Universal store have moved into Rundle Mall over the last 12 months. There were also several tenant moves within the precinct which include Veronika Maine, Wittner, Country Road, Optus, Connor, Temp, Cue and Calibre. Most of these stores have undergone refurbishment before moving into their new accommodation. Several of these tenants have moved ‘off mall’ into arcades off the mall such as Rundle Place, leaving backfill space on Rundle Mall.

ADELAIDE CBD RETAIL

First Half 2016



Metro OfficeRETAIL

Demand remains softThe Adelaide CBD leasing market enquiry remains solid, but tenants have been tentative to make decisions. There is no clear trend in terms of tenant type making enquiry with a spread of food, fashion, banking tenant types looking for space. The challenge in this is to match tenants to space available with the two of these not always aligning.

The outlook of the Adelaide CBD retail market is a positive one. The lack of new stock and reasonably solid enquiry suggest that vacancy rates are likely to remain relatively low. Incentives have begun to creep into the market over the last two years and range from 10-15 per cent and this is likely to persist until there is more momentum for tenants to commit to space. Rental growth in the Adelaide retail CBD market is likely to remain restrained, with a contraction in incentives more likely to help boost net effective

rents. The lack of stock available for sale in the CBD is the limiting factor for sales volumes as this precinct is very tightly held. The property which is being actively marketed is 158-160 Rundle Mall, so it is expected sales volumes will be well below 2015.

ADELAIDE CBD RETAIL VACANCY RATES

0

0.01

0.02

0.03

0.04

0.05

0.06

H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016

Source: Colliers Edge/Deloitte

Burnside Village, Glenside SARetail Leasing on behalf of Cohen Group


By Misha White Manager | Research [email protected]

Continued population growth in WA is driving an expansion in the retail sectors employment base. Over the year to March 2016 quarter, the ABS reported retail sector employment had jumped 12 per cent, or 15,200 additional workers. This is the largest increase across all sectors, and in combination with a steady unemployment rate, confirms Western Australia’s economy is gradually transitioning from its high reliance on the resource sector to consumer services sectors.

In the month of March 2016, retail turnover growth increased 1.24 per cent year-on-year. This was softer than national growth, at

Craigie Plaza Shopping Centre, Craigie Managed and leasing on behalf of Rifici Group

3.59 per cent, reflecting the softer economic conditions within WA. In comparison NSW and Victoria experienced robust growth over the past year.

Notwithstanding nominal turnover growth driven by a larger population, subdued consumer confidence in WA continues to impact some areas of discretionary spending. Over the year to March 2016, all sectors exhibited turnover growth with the exception of ‘Cafe, Restaurants etc.’; which was down 6.53 per cent.

Performance varies between locations. However, CBD High Street and mall rents have continued to correct. Though vacancy is fairly stable, lead time to lease is increasing and lower tenant demand has resulted in some landlords reducing rents to fill space.

As at the end of the March 2016 quarter CBD mall rents were averaging $3,780/sqm, down 1.8 per cent on a quarterly basis. Colliers International is expecting softer economic conditions over the short term to limit prospects for rental growth.

PERTH CBD MALL & HIGH STREET AVERAGE RENTS

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

Mar

-05

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16

Aver

age

Gros

s Ra

te $

/sqm


Over 2015, 34,188sqm of retail space was added to the Perth Metropolitan Area. This followed 106,628sqm of space added in 2014. There is approximately 59,158sqm of retail space under construction in the Perth Metropolitan Area that is scheduled for a 2016 and 2017 completion. A further 479,905sqm is also mooted

PERTH CBD RETAIL

First Half 2016



Metro OfficeRETAIL

over the next five years to the end of 2020. This includes major expansions to Garden City, Morley Galleria, Kingsway Shopping City and Mandurah Forum.

PERTH METROPOLITAN REAIL SPACE SUPPLY (EXCLUDING BULKY GOODS)

0

50,000

100,000

150,000

200,000

250,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Tota

l Are

a (s

qm)

Forecast


No major transactions were reported in the first 4 months of 2016. Over 2015, 14 major transactions totalling $852.5 million were completed. This included a 50 per cent share in Rockingham City ($273.5 million) which was part of the Novion/Federation Centres merger. The two most recent transactions included two sub-regional centres -The Shops at Ellenbrook and Livingston Marketplace in Canning Vale, which were part of the ICWA portfolio divestment. The Shops at Ellenbrook sold for $200 million and Livingston Marketplace sold for $83 million. Both were purchased by Vicinity Centres.

General Post Office, PerthLeased on behalf of the Australian Postal Corporation

WESTERN AUSTRALIA RETAIL RETURNS

-12

-9

-6

-3

0

3

6

9

12

15

18

21

24

Jun-

06

Dec-

06

Jun-

07

Dec-

07

Jun-

08

Dec-

08

Jun-

09

Dec-

09

Jun-

10

Dec-

10

Jun-

11

Dec-

11

Jun-

12

Dec-

12

Jun-

13

Dec-

13

Jun-

14

Dec-

14

Jun-

15

Dec-

15

Mar

-16

(Rol

ling

Annu

al %

pa)

Capital Return (Rolling Annual %pa) Income Return (Rolling Annual %pa) Total Return (Rolling Annual %pa)

Source: Colliers Edge/IPD

Given retail rents were generally more stable and the robust investor demand for major retail centres, IPD reported retail asset returns were the best performing amongst Western Australian commercial property sectors. Annual retail ‘Total Return’ was 14 per cent in the March 2016 quarter. This was driven by a 6.9 per cent annual ‘Capital Return’ and 6.6 per cent ‘Rental Return’.

The longer-term outlook points to a continued requirement for additional retail space to cater for Perth’s population growth forecasts. This is expected to underpin investor interest in Perth retail assets. The low interest rate and low comparative yields/returns of other asset classes, should translate to a significant volume of capital continuing to chase retail investment assets with secure cash flow and or upgradable investment options. This is likely to result in tight market yields for well-positioned retail assets.


Food is well and truly the new black.

As centres search for ways to differentiate themselves, we’re seeing more sophistication in newer dining precincts and bolder strategies implemented in the master planning stage. Centres are competing against each other in this way by offering compelling food options and to achieve this, incentives for the right tenant can vary.

The new draw cardDespite the fact that dining outlets can in some cases pay less rent per square metre than fashion retailers, we have seen centres invest heavily in their dining precincts both financially and in space allocation. The evolution of supermarket fresh food sections attributed to an across-the-board raising of the bar in respect to specialty food stores providing healthy, tasty and international options to consumers. To increase footfall and customer satisfaction, centre owners have realised that providing the right ‘food mix’ has become crucial.

In NSW, developments such as Hawker Lane rejuvenated the food offering outlining Westfield Chatswood by changing the shape of the street façade, creating a new entry point to the centre in addition to creating an international market experience. Westfield Hurstville recently completed a new rooftop dining and entertainment precinct with a range of late–trading outlets, and Westfield Kotara’s outdoor dining and entertainment precinct The Rooftop, located on the building’s rooftop was inspired by the Hunter Valley.

More recently, the opening of St Collins Lane in Melbourne includes ‘The Aviary’, taking up the entire top floor of the development comprising “a collection of restaurants offering a unique Melbourne dining experience” also accessible during the later hours of the night.

A $670 million refurbishment of Pacific Fair in the Gold Coast boasts a new outdoor casual dining precinct, ‘The Patio’, open until late daily and home to new local and international food. In Brisbane, Westfield North Lakes added ‘The Marketplace’ (fresh food) and ‘The Laneway’ (alfresco dining) precincts. Top Ryde City Shopping Centre, Ryde NSW

Retail leasing on behalf of Blackstone

By Kristina Mastrullo Manager | Research [email protected]

Food courts are noticeably being replaced by high quality, contemporary dining precincts - an elaborate and planned collection of fresh food outlets, cafes and restaurants, both in and outlining centres as they form a larger part of the shopping centre experience. Eating out has become an essential luxury and these new ‘food courts’ are used increasingly as a driver of footfall as customers look for a space to not only transact, but to congregate.

As the economy transitions from mining to dining with the lower Australian dollar encouraging tourism spend, the night-time retail trade has begun to flourish. More focus is placed on services, particularly the food and beverage kind, and centres have stepped up in their offerings creating competitive dining areas. No longer are department stores the main attraction drawing in customers. As an example, Top Ryde Shopping Centre (NSW) replaced an underperforming Myer with a state-of-the-art Coles to complement the successful launch of the centre’s Piazza Dining Precinct last year, enforcing the shift from department stores to food precincts as centres’ new anchors.

Food is the new black

CENTRES

First Half 2016



Metro Office

Sunshine Plaza Shopping Centre, Hampshire VicRetail leasing on behalf of a private client

RETAIL

Due in 2019, Perth’s Garden City Shopping Centre will contain a comprehensive main street casual dining and leisure precinct and Westfield Marion in Adelaide is revitalising their food offering with 14 new dining outlets with a total of 800 seats upon completion.

Variety is key. More centres around the country are following this strategy, placing greater emphasis on their food and beverage spaces – which now also contain key fruit & vegetable and deli operators as well as similar small format supermarkets - and ensuring the selection of outlets is in line with their overarching theme. Generally speaking, a new, contemporary food offering reinvigorates an established centre, driving an improvement in traffic conditions, and we’ve seen this approach continue with pace.

‘Eating Out’The evolution of online shopping and home delivery has seen retail landlords providing a distinct experiential dining precinct within their centres. In our investigations, we’ve seen certain design principles employed establishing some basic characteristics.

Outdoor/AlfrescoAn outdoor element is popular especially among the new refurbishments we’re seeing. Whether it be a rooftop, or on high street, having an open-air or indoor/outdoor concept appears vital in establishing a successful product, adding to the existing nightlife surrounding it.

GreenHaving a ‘green’ presence goes hand-in-hand with centres supplying an outdoor dining environment. Consumers are responsive to plants, trees, grass and generally earthy tones akin to nature as Australians have a strong established outdoor culture. It’s a way to maintain the spirit of the outdoors regardless of where the precinct is situated and lengthens the duration of patronage.

AccessPathways connecting the dining precinct directly to street frontages and the car park as well as providing easy routes within the centre are key. Night time accessibility is fundamental, especially when these precincts remain open past normal trading centre hours.


Late TradingWhile some internal food outlets will close when centre operating hours lapse, these new dining precincts allow for late trading and are marketed as such. Expanding retail trade not only benefits the retailers and landlord, it also provides an alternative dining experience to local residents and in some cases, tourists.

Auxiliary AmenitiesAdjoining or included in most new dining precincts are additional entertainment pockets i.e. areas for children to play safely, cinemas, even a stage for live entertainment. Centres want to create a full-bodied experience that leads into the night. These evolved food courts act as an extension of existing night life outside centre boundaries or as a solution to a potential lack of options in the area.

Evolution of Dining PrecinctsShowcasing Westfield Kotara’s recently opened The Rooftop dining precinct with 9 new restaurants and an entertainment area, we ask Nicky Watson, Development Executive, Scentre Group why Scentre Group has focused on their food and beverage offering in this centre.

It’s clear that traditional food courts have evolved into dining and entertainment precincts, case in point is The Rooftop at Westfield Kotara boasting a new food and hospitality experience. What are the main drivers for the complete overhaul? Is it to drive foot traffic?

As part of a customer centric review of the centre and the customer base we identified a gap in our dining offer. When focusing on the market we observed key pockets in Newcastle were evolving and observed how the Newcastle residents were responding. The dining offer is pitched for lunch and evening,

Summerhill Shopping Centre, Reservoir VicRetail leasing on behalf of Las Group and LaSalle Investment Management


Metro OfficeRETAIL

more than the typical quick eats of the food court. When this is complemented with an immersive environment, customers are willing to accept a slightly higher price point. In saying that, the food court offer is still in demand and we’ll continue to invest capital into that space. Since the launch of the precinct, we’ve seen a significant increase in traffic (foot fall) and dwell time across the whole centre.

How important was planning The Rooftop during the refurbishment strategy? Was it the main focus?

The synergies of dining and entertainment lead to the precinct evolving around the Event’s rooftop cinema which has been part of the centre’s masterplan since 2004. The nine restaurants are positioned around a central landscaped common area and permanent stage which was inspired by the relaxed sense of the Novocastrian lifestyle and the ambience of the nearby Hunter Valley vineyards. The execution of The Rooftop required a significant amount of planning due to the complexities of the rooftop destination location, restaurant usages and layers of design, from the architecture to the curation of the space.

We’ve noticed that dining precinct designs are quite specific and keep in line with a particular theme. Were certain tenants actively pursued for The Rooftop to fall in line with Scentre Group’s strategy?

Each food precinct reflects the lifestyle of the community and responds to the community and environment. Our Leasing Team presented the design concepts from their initial meetings with the retailers. The commitment from the team to deliver an authentic experience excited the retailers and as such we worked with their design teams to tailor their fitouts to respond to the common mall whilst reflecting their food offer.

The Rooftop is open daily till 10pm with direct street access. Is it important for new dining precincts to have direct street access to maintain foot traffic after centre operating hours?

The customer journey is vital to the success of the precinct from the external road network through the car park and from within the Centre. The precinct is serviced by passenger lifts, a new staircase and an escalator.

In addition to Westfield Kotara, we’ve seen Westfield Chatswood, Hurstville and North Lakes undergo refurbishments with emphasis on their new dining precincts. Is this a trend that will continue within the Scentre Group portfolio, or are the re-designs dependent on the centre, their locations, demographics, etc?

The Rooftop aligns with the strong direction of the Westfield business as a whole, focusing on experiential and memorable spaces. We continue to challenge our teams to evolve the concept and deliver on our company purpose, creating extraordinary places, connecting and enriching communities. The Rooftop at Kotara was a response to the Hunter Valley appeal whilst the Chatswood Hawkers Market reflected the Asian demographic and the lifestyle of being “always on”. Our food evolution focused on restaurants as well as fresh food precincts and food courts.

The next level of fresh food markets will launch with Marion and Warringah Mall. The Whitford cinema and restaurants precinct has recently received board approval so that will be different again. Given the amount of projects, a national food team has been established which is being driven by Patrick Sergi.

The globalisation of foodThe current state of the residential market is having an impact on retail centres as local consumers use these establishments more as a sense of place, a community hub. Coupled with the increase in tourism, as a result of a low Australian dollar, and night life trade, it makes sense to see the traditional food court be superseded with a more refined product.

Australia’s diversity in food has imposed higher standards of quality, placing us on an international scale and putting pressure on traditional brands. Consumers expect to eat more traditional international foods and are turning away from ‘fast foods’ which have historically dominated our food courts. Now, the food offerings in centres are more complex as they take into consideration cultures, both domestic and abroad, as well as local demographics.

The face of Australian food courts has evolved. We’re seeing more sophistication and complexity in new and improved dining precincts serving to completely eradicate the stigma of traditional food courts. It’s simple - to drive and sustain foot traffic centres require a competitive edge, and the addition of a contemporary dining precinct and the revitalisation of existing precincts serve that purpose.

Park Ridge Town Centre, Park Ridge QldRetail leasing and managed on behalf of RG Property Pty Ltd


of Masters stores which were proposed have halted. There were several Masters sites which were under construction when this announcement was made with subsequent announcements indicating that these stores would not commence trading.

Looking forward the removal of the Masters construction is likely to see the supply pipeline remain far more subdued with just over 154,000sqm of space forecast to complete this year. 2017, however is shaping up to be stronger with over 400,000sqm in the pipeline.

Costco and Ikea plan to expand store networkBoth Costco and Ikea have announced plans to open further stores in Australia. IKEA will soon be underway with construction of their 74,000sqm development in Campbellfield, Victoria. Last year IKEA Australia announced that they would like to expand the current store network from eight to up to 22 over the next few years. As many as 12 smaller format stores are under consideration with the remainder likely to be the current large format that is currently in operation. In addition they plan to roll out parcel pick up points and click and collect options. These formats such as these have been tested overseas and are aimed at supporting their online business. There are also plans for two new distribution centres which will allow the number of items available to the Australian market to increase significantly and also reduce shipping times to customers.

RETAIL SUPPLY PIPELINE

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Source: Colliers EdgeHome Hub Castle Hill, Castle Hill NSW

Retail leasing on behalf of LaSalle Investment Management

By Kate Gray Associate Director | Research [email protected]

Large Format retail pipeline softer in 2016The winding up of Masters is likely to have a significant impact on supply pipeline in the large format market. Masters and Bunnings accounted for over 80 per cent of the construction pipeline during both 2014 and 2015. This is unsurprising as Masters was trying to build a store network quickly and Bunnings continued to build competing stores. With the Woolworths decision to exit the large format market early in 2016, all new commencements

Large format retail pipeline softer in 2016

LARGE FORMAT RETAIL

First Half 2016



Metro OfficeRETAIL

Costco has started construction on their Marsden Park store which is due to complete by the end of the year. There are plans for a fourth store in Melbourne and a second store for Brisbane. Costco is also investigating opportunities for stores in locations such as Newcastle, Wollongong and Darwin.

Sales volumes above averageSales volumes in the large format retail sector were above average in 2015 with over $1.3 billion of large format assets changing hands during the year. The start of 2016 has seen just under $296 million of assets change hands during the period. The largest sale during 2016 was the sale of Indooroopilly Central which sold for $85 million in May with a yield of 5.9 per cent. This yield was the first for a homemaker centre below six per cent and is likely to result in a tightening of yields during the June quarter. Results in March show a tightening of yields across all cities over the previous 12 months with the strongest tightening in the Sydney market with 100 basis point tightening recorded. Hardware and stand-alone large format stores have seen yields remain reasonably steady, but home maker centres have had a high risk premium which is now more closely aligned with other retail asset classes.

Logan MegaCentre, Slacks Creek QldSold as part of the biggest Large Format Portfolio transaction in Australian history on behalf of 151 Property

Homemaker Centre vacancy fallsVacancy for Home maker centres has fallen marginally in the last six months from 2.3 per cent to 2.2 per cent. This however hides disparate performance across the states. Melbourne, Brisbane and Adelaide has seen vacancy tighten with Perth and Sydney seeing small increases. On the ground agents are reporting that demand is strong, in particular for premium format centres where vacancy is limited.

Overall the large format market is in good shape with vacancy at low levels and new supply expected to soft. Yields are likely to tighten further in the coming year, with current evidence supporting this trend. Supply will remain subdued during the year, but is forecast to pick up pace in 2017.

We have seen good trading results from several large format retailers which has fuelled expansion plans. Interest in this sector has also resulted in an uplift in IPO activity with both Beacon Lighting and Baby Bunting listing. Other groups which are yet to make a play are Super A Mart and The Good Guys.


Our experience RETAIL

Accelerating success. Note: Figures calculated over an 18 month period from November 2014 to April 2016 across Australia and New Zealand. Managed and valued figures does not include New Zealand. *Includes leased and ongoing projects ** Sales of assets $15 million and above only

How else can we help you?Speak to one of our property experts [email protected]

Home Hub Castle Hill, NSW52,000m²

On behalf of LaSalle Investment Management

Level 2 & 3 Atrium on Elliot Auckland, NZ2,016m²

On behalf of The Warehouse Limited

The Village Dandenong South, Vic1,433m²

On behalf of RG Property

General Post Office Perth, WA4,045m²

On behalf ofAustralian Postal Corporation

The Wallis Building Glenelg, SA1,800m²

On behalf of The Wallis Group

Woolworths Spring Farm Spring Farm, NSW1,201m²

On behalf of Fabcot Pty Ltd

MidCity Centre Sydney, NSWUndisclosed

On behalf of Fortius Funds Management

Stud Park Shopping Centre Rowville, Vic$154 million

On behalf of Lendlease

Forestway Shopping Centre Sydney, NSW$112 million

On behalf of GPT Wholesale Shopping Centre Fund

Large Format Retail Portfolio Australia Eastern Seaboard$219 million

On behalf of 151 Property

Hinkler Central Bundaberg, Qld$110 million

On behalf of Mirvac Funds Limited

563 assets covering over

238,387 square metres*

leased

45 assets totalling over

$2.94 billion value**

sold

IN THE LAST 18 MONTHS

Runaway Bay Shopping Centre Runaway Bay, Qld$160 million

On behalf of Vicinity Centres

8.1 million square metres totalling over

$52 million worth in value

Our experience RETAIL AUSTRALIA AND NEW ZEALAND

Note: Figures calculated over an 18 month period from November 2014 to April 2016 across Australia and New Zealand. Managed and valued figures does not include New Zealand. *Includes leased and ongoing projects ** Sales of assets $15 million and above only

For more information about Colliers Internationaland working with us visit:www.colliers.com.au

Primewest Auburn Megamall Auburn, NSW32,300m²

On behalf of Primewest Funds Ltd

Fairfield Forum Fairfield, NSW18,200m²

On behalf of Harrington Property

Park Ridge Town Centre Park Ridge, Qld12,900m²

On behalf of RG Property Pty Ltd

Sunshine Plaza Sunshine, Vic15,395m²

On behalf of a private client

Norwest Marketown Baulkham Hills, NSW5,168m²

On behalf of Mulpha

Westfield Parramatta Regional Centre Parramatta, NSW137,232m²

On behalf of Scentre Group Limited

Warringah Mall Shopping Centre Brookvale, NSW132,690m²

On behalf of AMP Capital

Macarthur Square Regional Centre Sydney, NSW109,325m²

On behalf of Perron Group

Westfield Marion Regional Centre Oaklands Park, SA133,432m²


Westfield Southland Regional Centre Cheltenam, Vic129,191m²


Cairns Central Regional Centre Cairns, Qld53,429m²

On behalf of Starhill Global REIT

valued

157 assets totalling over

1.2 million square metres

managed

IN THE LAST 18 MONTHS

Shore City Auckland, NZ15,539m²

On behalf of Prescision Group


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Colliers International does not give any warranty in relation to the accuracy of the information 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 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 2016.

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