Briefing National Retail February 2018

Transcription

1 Savills Research Australia Briefing National Retail February 2018 Report Contents Executive Summary 2 Key Market Indicators 4 Retail Trade 6 Regional/Sub-Regional Centres 8 Neighbourhood Centres 10 Large Format Retail 11 NSW 12 VIC 14 QLD 16 WA 18 SA 20 Outlook Key 2017 Transactions 23 Key Contacts 26

2 Savills Research Briefing National Retail Associate Director Research Katy Dean Senior Analyst Research Peter Sutherland For our latest national reports, visit savills.com.au/research To join Savills Research mailing list, please Executive Summary Many of the key drivers that have underpinned the performance of Australia s retail property market since 2015 are unchanged. Debt remains affordable and populations continue to grow, particularly on the eastern seaboard. The weight of capital targeting property and the international search for yield has yet to lose any significant momentum, rather conditions are shifting globally and markets that were previously off the agenda for political or economic reasons are now being considered again. Global demand for retail assets is clearly evident with Westfield Group announcing in December that it had struck a deal to sell the company to European listed property company, Unibail-Rodamco, for US$24.7 billion (AU$32.8bn). After the deal is finalised, Unibail-Rodamco will emerge with control of 104 assets in 27 markets across the world, with an estimated US$72.2 billion of gross market value. Australian retail property has been a major recipient of investment capital over the last three years; reflecting significant pent-up demand on the back of not just Australia s safe haven status, but the sector itself within the commercial property market. Direct investment over the three years to 2017 reached AU$25.6 billion, up from AU$19 billion in the three years to While overall volumes appeared to moderate during the first half of 2017, the pace quickly recovered and the final quarter closed strongly as major assets came to market. Surpassing expectations, 2017 saw a total of circa $9.17 billion invested across Australia over the year. Although investment volumes in 2015 got close to $9 billion, investment in 2017 ($5m+) outshines any level seen in the last decade. Almost half of the total value invested was in the $200 million + segment, a trend which hasn t been seen since While large institutional funds and trusts, as well as foreign and private investors, have all played a part in the hunt for yield in recent years, there has been a noticeable change in strategy of net sellers in most markets to sell down non-core assets. This has created opportunity for investors actively seeking value-add retail assets and purchaser and vendor profiles are beginning to shift. Further supporting this trend is the amount of capital that is currently being invested into the redevelopment of major centres across the country. Broadly speaking, there are some challenges facing the sector. The so called Amazon effect is still playing out and the level of investor/developer confidence in the sector remains varied, particularly for discretionary retail. While non-discretionary retail appears to have less headwinds from online trade, all asset classes remain highly competitive and sought-after. Retail sales turnover growth has also been choppy across the country, with a divergence developing between key retail categories as consumer shopping patterns continue evolving. In this report, we look at the major retail sub-sectors across Australia s main capital cities focusing on recent investment sale volumes and development trends, as at December State Summary Table Key State Indicators (%) Latest NSW VIC QLD WA SA ACT AUS SFD / GDP Growth Sep (2.7) 4.2 (3.0) 3.0 (2.0) -4.2 (2.2) 3.6 (2.0) 3.0 (2.6) 2.2 (2.6) Population Growth Jun (1.4) 2.3 (2.1) 1.6 (1.8) 0.8 (2.1) 0.6 (0.9) 1.7 (1.8) 1.6 (1.7) Employment Growth Nov (1.6) 3.0 (2.1) 4.8 (1.4) 2.8 (1.6) 1.3 (0.7) 3.9 (1.6) 3.1 (1.6) Unemployment Rate Nov (5.3) 5.9 (5.6) 6.1 (5.6) 6.0 (4.8) 6.3 (6.0) 4.0 (3.8) 5.6 (5.4) Inflation Sep (2.5) 2.2 (2.3) 1.5 (2.4) 0.8 (2.1) 1.8 (2.3) 2.1 (2.2) 1.8 (2.4) Retail Turnover Growth Dec (4.0) 4.3 (4.0) 0.4 (3.1) -0.1 (3.3) 4.9 (3.0) 1.5 (3.3) 2.4 (3.6) Source: ABS/Savills. Note: Annual Change shown, 10yr compound average shown in brackets. 02

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4 Savills Research Briefing National Retail Key Market Indicators NSW and QLD front runners as Australian retail transactions ($5m+) reach a 10-year high. National Transaction Profile Vendors v Purchasers 04 Vendors Purchasers 0% 20% 40% 60% 80% 100% Fund Trust Developer Owner Occupier Government Syndicate Foreign Investor Private Investor Other Source: Savills Research (Year to Dec-17) National Sales Activity Following an investment sale surge in November and December, mostly in Queensland and New South Wales, 2017 can go on record as an extraordinary year. The total value of investment transactions ($5m+) signed in 2017 reached a 10-year high at $9.17 billion, up 23% on 2016 and well above the 10-year average of $5.7 billion. Almost half of the total value invested was in the $200 million+ segment, a trend not seen since Of the surveyed markets, New South Wales and Queensland were the headliners, recording significant rises in investment volumes on a year-on-year basis. Transactions in the Regional SC sector ($2.51bn) were largely responsible for the recordbreaking year. The last time Regional sales volumes got close to this level was back in 2007 ($2.87bn). The Large Format sector was also a major standout, with sale volumes reaching its highest level in the past decade. National Sales Activity ($5m+) by State $10bn NSW VIC QLD WA SA ACT $9bn $8bn $7bn $6bn $5bn $4bn $3bn $2bn $1bn $0bn Source: Savills Research (Year to Dec-17)

5 February 2018 National Retail Supply by Sector The national supply pipeline* is expected to gradually build over the next two years as new Regional, Neighbourhood and Large Format retail stock is released and owners re-position their assets to best adapt to the changing environment. Traditionally Regional centre owners have attempted to boost market share by expanding existing centres, however their collective strategy is increasingly becoming one of differentiation by creating a customer experience. This is in response to a structural change in consumer spending habits as shoppers shift to online platforms, which in many cases is cheaper and more convenient. The Large Format category is also expected to grow strongly over the three years to Home Consortium and Bunnings are both expanding in the wake of the former s purchase of the Masters portfolio in August National Retail Supply by State Nationally, two main sectors are driving the development pipeline with Regional centre projects accounting for 41% of total GFA and Large Format accounting for 26.5%. Neighbourhood projects account for 14.5% and Sub- Regional 10.8%, with the balance occurring across CBD Centres, Shops, Freestanding and Mixed-Use centres. New South Wales has the largest supply pipeline of all the states surveyed, with a high proportion at DA stage. This is consistent with the state's economic growth and high levels of infrastructure spending associated with various transport projects. This is creating opportunities for retail investors, particularly in residential growth corridors, with the volume of new development pipeline being led by Regional and Large Format centre projects. National Supply Pipeline by Type ('000sq m) National Supply Pipeline by State Share (%) 1,200 1,000 Regional Sub Regional Neighbourhood CBD Centre Large Format Freestanding NSW 43.5% 800 VIC 6.2% 600 QLD 27.8% Source: Cordell/Savills Research (Year to Dec-17) *Pipeline data includes new/additions/redevelopment/refurbishment projects either under construction, in committed stage or in planning. SA 2.7% WA 19.8% Source: Cordell/Savills Research (Year to Dec-17) savills.com.au/research 05

6 Savills Research Briefing National Retail Retail Trade Retail Trade Growth Retail Trade grew by 2.4% over the year to December 2017, a figure below all long term averages. Whilst retail trade has traditionally been stronger in December, retail sales fell by 1.3% (seasonally adjusted) over the month of December. Higher than expected sales volumes were not enough to buoy total retail trade growth as increasing competition between department store retailers kept overall prices down. Weaker discretionary spending continues to hamper overall retail trade growth numbers as a result of record low wages growth and an earlier than expected downturn in the residential housing sector, leading to more cautious consumers. With economic indicators painting a largely mixed picture, the outlook for cash rates remains divided. This uncertainty is likely to translate to retail trade numbers over % 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: ABS / Savills Research Source: ABS / Savills Research Retail Trade Growth by State (Dec-17) Challenges in the retail sector remain evident with all states, with the exception of South Australia, are performing below their respective long term averages on a rolling annual basis. After a stronger than expected November, all states recorded falls in retail trade in the month of December, except Queensland, which remained largely unchanged. Whilst online retailing numbers were higher than the year before, competitiveness between retailers led to earlier than expected sales and internet promotions, starting in November, keeping a lid on overall retail trade growth numbers in December. 6% 5% 4% 3% 2% 1% 0% 1yr 5yr 10yr 15yr 1% NSW VIC QLD WA SA ACT AUS Source: ABS ABS / / Savills Research Retail Trade by Sector (Dec-17) All sectors recorded falls in the month of December, except for Food retailing, which fell by 0.7% in December, buoying the overall rolling annual growth rate to 2.7%. An earlier than expected cooling down of the residential housing sector continues to hamper Household Goods and Hardware & Garden retailing. With a rebound in full-time employment growth, there s potential for a translation onto wages growth, and thus making a turnaround in retail trade turnover possible. However, price competitiveness amongst discretionary retailers remains more aggressive than expected, as noted by sales starting earlier than the traditional Boxing Day sales. Positively, an uptick in Food retailing over December suggests a turnaround. 4% 3% 2% 1% 0% 1% 2% 3.8% Café & Restaurants 2.7% 2.5% 2.5% Food Supermarkets Other 1.5% 1.3% Clothing & Footwear Household Goods 1.1% Department Stores (1.6%) Hardware & Garden 06 Source: ABS / Savills Research. Graph reflects annual rolling growth rate, seasonally adj.

7 February 2018 Retail Trade (10yr Indexed) The differing performance across Australia s retail sectors is shown with non-discretionary retailing clearly outperforming retailing in discretionary goods over the last 10 years. Whilst Supermarket retailing has grown over 50% over this period, Department Stores retailing has remained largely unchanged over the same period. Indeed better than expected retail turnover figures from December were driven by a surge in Food, Supermarket and Café & Restaurant sales. Increased competition and a continued slowdown in new home building has led to falls in sales for the Household Goods and Hardware & Garden sectors. A combination of weak wage growth, record high indebtedness and increasing prices for non-discretionary goods is likely to hinder discretionary spending over the medium term Total Supermarkets Household Goods Department Stores Hardware & Garden Source: ABS / Savills Research Household Savings Rate Australia s household savings rate continues to fall after peaking at 8.8% in September 2009, after the Global Financial Crisis, to 5.0% in June Whilst there are concerns that this has been as a result of a wealth effect, the chart indicates that falls to the savings rate coincide with the beginning of the resources downturn in 2012 and falls in returns on fixed interest. 8% 6% 4% 2% 0% 2% Source: ABS / Savills Research Retail Trade by Sector & State Supermarket Food Clothing & Footwear Department Stores Household Goods Hardware & Garden Café & Restaurants NSW 4.2 (4.2) 3.9 (3.7) 1.2 (4.3) 0.6 (0.2) 0.2 (3.8) -6.8 (5.5) 5.1 (6.5) 1.4 (4.3) 2.6 (4.0) VIC 2.2 (4.5) 2.8 (4.5) 3.2 (3.2) 4.7 (1.0) 3.7 (3.5) 2.6 (6.3) 3.8 (5.2) 9.7 (4.2) 4.3 (4.0) QLD 1.0 (4.4) 1.7 (4.5) -0.2 (2.5) -0.5 (0.3) 3.2 (1.6) -1.6 (3.4) -2.9 (3.3) -2.5 (2.9) 0.4 (3.1) WA 1.3 (4.0) 0.9 (3.8) -0.3 (-1.0) -0.6 (-0.2) -6.3 (1.4) -6.5 (1.8) 5.9 (6.6) -1.9 (5.3) -0.1 (3.3) SA 3.8 (4.2) 3.2 (4.0) 6.4 (2.9) -0.4 (-1.2) 6.7 (0.3) 20.3 (1.9) 8.7 (4.6) 0.2 (3.8) 4.9 (3.0) ACT -2.3 (5.4) -1.5 (4.8) 1.4 (2.3) -2.9 (-0.6) 6.4 (2.2) -3.1 (4.7) -1.1 (4.4) 14.3 (2.5) 1.5 (3.3) TAS 7.6 (4.4) 8.5 (4.5) (0.5) 0.0 (0.0) -4.0 (0.4) -8.7 (0.8) 8.7 (4.6) 0.0 (0.0) 3.1 (2.8) NT -1.8 (3.4) -0.5 (3.5) 0.5 (1.8) 0.0 (0.0) 3.5 (0.8) 11.3 (4.4) -3.3 (7.1) 0.0 (0.0) -0.6 (3.3) AUS 2.5 (4.3) 2.7 (4.1) 1.5 (3.0) 1.1 (0.3) 1.3 (2.6) -1.6 (4.3) 3.8 (5.4) 2.5 (4.0) 2.4 (3.6) Other Total Source: ABS/DOE/RBA/Savills Research; 10yr Averages shown in brackets. savills.com.au/research 07

8 Savills Research Briefing National Retail Regional & Sub-Regional Centres Regional Centre sales soar to $2.51 billion in the highest level of investment since National Sales - Regional & Sub-Regional Collectively, Regional and Sub-Regional transactions accounted for almost 40% of total investment volumes captured during Transactions in the Regional segment provided a significant boost to overall numbers, contributing $2.51 billion to the year-end total of $9.17 billion. The last time Regional sales volumes reached this level was 2007 ($2.87bn), with annual volumes trending closer to $1.0 billion since There were several landmark deals that underpinned overall performance as institutions traded asset stakes, including AMP, GPT and ISPT. While the Regional segment has performed at elevated levels during 2017, Sub-Regional volumes are down on 2016 performance, $1.053 billion compared to $1.419 billion. The shift comes after four years of high investment volumes in the segment and increased opportunity to buy Neighbourhood centres in 2017, which in some cases sit at a similar price point. National Sales Activity ($5m+) Regional & Sub-Regional $3,500m Regional Sales $m Sub Regional Sales $m $3,000m $2,500m $2,000m $1,500m $1,000m $500m $0m 08 Source: Savills Research (Year to Dec-17)

9 February 2018 National Supply Regional Centres Queensland was the most active in 2017, with at least four Regional centres completing extension projects, the largest being Grand Central Garden Town Centre Stage 2 (45,000sq m) and Westfield Chermside (33,000sq m). In some cases Sub-Regional or even Neighbourhood centres are being substantially expanded into Regional centres, with New South Wales and Western Australia the most active in this segment over the next four years. In Western Australia, Scentre Group has two projects either underway or in the pipeline including Westfield Carousel and Whitford City, together expected to add circa 147,000 square metres. In New South Wales, Regional centre extensions under construction in 2017 were located in the south western Sydney growth corridor, including Narellan Town Centre and Macarthur Square. National Supply Sub-Regional Centres Three new Sub-Regional centres were completed in 2017, including Lakelands Shopping Centre (23,300sq m), 65 kilometres south of Perth CBD, Tarneit Central (25,000sq m), Tarneit, 22 kilometres west of Melbourne CBD and Delacombe Town Centre (16,150sq m), Ballarat, Victoria. Both Lakelands and Tarneit are located within key population growth regions. The drop in Sub-Regional development in 2018 and 2019, relative to the level seen in 2017, is partly due to the redevelopment of some Sub-Regional centres to Regional scale. Examples include Bunbury Forum SC in Western Australia, Stockland Greenhills and Marrickville Metro in New South Wales. Queensland currently leads future development in this subsector, predominantly through new and extension projects either underway or in the pipeline. National Retail Supply Regional (sq m) National Retail Supply Sub-Regional (sq m) 350,000 NSW VIC QLD WA SA 100,000 NSW VIC QLD WA SA 300, ,000 80, ,000 60, ,000 40, ,000 50,000 20, Source: Cordell/Savills Research (Year to Dec-17) Source: Cordell/Savills Research Source: Cordell/Savills Research (Year to Dec-17) savills.com.au/research 09

10 Savills Research Briefing National Retail Neighbourhood Centres National Sales Neighbourhood Centres Transactional activity in 2017 has been led by New South Wales and Queensland, with close to 84% of national sales in the sector identified from these two states. Over $1.84 billion in transactions were recorded in this sub-sector during 2017, representing 20% of national retail investment volumes over the same period. While some institutional owners sold down assets, the majority of assets were traded on the back of private investors selling. Not surprisingly, centres with long leases anchored by Coles or Woolworths were highly coveted, as evidenced by the sale of Woodcroft Village, in Sydney s North West, on a passing yield of 5.54%. Institutions were the second largest net seller behind privates. Charter Hall recently announced their strategy to divest noncore Neighbourhood centres, exchanging contracts for centres across New South Wales, Tasmania, South Australia and Queensland. Vicinity Centres and Sentinel followed a similar strategy through 2017 taking advantage of the weight of capital from private investors to divest non-core assets and redirect or reinvest funds. National Supply Neighbourhood Centres It is estimated that more than 400,000 square metres of new supply, including extensions, is in the pipeline over the next five years, with just under half of this expected to come online in The majority of these developments are occurring in areas where population densities are increasing as a result of new dwelling supply. On the supply-side there is a low volume of new Neighbourhood centre development activity in the pipeline relative to Regional/Sub-Regional sub-sector. New supply is being led by projects in New South Wales predominantly, followed by Victoria and Queensland. The redevelopment/refurbishment of existing centres remains a priority to owners, with a large amount of construction works also underway across the country. National Sales Activity ($5m+) Neighbourhood Centre National Retail Supply Neighbourhood Centres (sq m) $2,500m NSW VIC QLD WA SA 1 180,000 NSW VIC QLD WA SA $2,000m , ,000 $1,500m , ,000 $1,000m 80,000 60,000 $500m 40,000 $0m Source: Savills Research (Year to Dec-17) 20, Source: Cordell/Savills Research Source: Cordell/Savills Research (Year to Dec-17) 10

11 February 2018 Large Format Retail National Sales Large Format Retail National Supply Large Format Retail A massive upturn in Large Format sales activity has elevated the sub-sector into new territory. Representing 18% of national retail investment volumes, more than $1.63 billion in sales were recorded in 2017, the highest level seen in the last 10-years. Since 2008, the sub-sector has turned over an average of approximately $750 million annually, with 2016 volumes sitting at circa $700 million. The rise in 2017 volumes is on the back of by eight significant $50 million + transactions. The largest being the acquisition of two centres by listed Aventus Property Group for $436 million in Q2/2017 (Home Hub Castle Hill and Home Hub Marsden Park. Aventus announced their expansion strategy back in 2016 and now has more than 20 centres in their national portfolio with a total value of $1.85 billion. Despite the ongoing evolution of online retail and new entrants to the Australian landscape, investment in this sub-sector is one of the strongest nationally. The largest shift has been in institutional capital (funds/trusts), which accounted for about 60% of the acquisitions in 2017, almost double the activity seen in Investor confidence in the sub-sector is contributing to an upswing in new supply over the next five years. More than 800,000 square metres of Large Format supply (including refurbishments) is underway or in the pipeline over this period and approximately half of this is in New South Wales. Technology, globalisation, big data, sustainability and of course, e-commerce are just some of the forces driving this change across retail and logistics. Large Format centres now incorporate a broad tenant mix base they are no longer exclusively selling white or brown goods, with fitness centres, leisure and even big box pharmacies now a common feature. Some of these centres are also being incorporated into or adjoining industrial or business parks, a strategy which allows consumers to have greater access to goods, both discretionary and non-discretionary, in areas that were previously under-supplied. On that note, owner confidence to develop/redevelop in the sub-sector reflects the evolving landscape and desire to remain sustainable in the future. National Sales Activity ($5m+) Large Format National Retail Supply Large Format (sq m) $1,800m NSW VIC QLD WA SA ACT $1,600m $1,400m $1,200m $1,000m $800m $600m $400m $200m $0m 360, , , , , , ,000 80,000 40,000 0 NSW VIC QLD WA SA Source: Savills Research (Year to Dec-17) Source: Cordell/Savills Research (Year to Dec-17) savills.com.au/research 11

12 Savills Research Briefing National Retail NSW Sydney will remain the defensive location with continued population growth and overseas money fuelling investment demand. Steven Lerche National Director Retail Investments/Services Sydney Overview NSW New South Wales continues to be one of the top performing states nationally. The burgeoning supply pipeline indicates confidence in the sector, which also appears to be linked to the ramp-up in state led infrastructure spending. On the back of the construction pipeline, labour market conditions have improved with the state s unemployment rate now the lowest nationally. Population growth remains buoyed by interstate and overseas migration, not only providing a boost to retail trade numbers of late but indicative of the strength of the New South Wales economy. NSW Retail Economic Drivers As at AUS NSW GDP / SFD Growth Sep (2.6) 3.1 (2.7) Population Growth Jun (1.7) 1.6 (1.4) Employment Growth Nov (1.6) 2.9 (1.6) Unemployment Rate Nov (5.4) 4.8 (5.3) F/T Earnings Growth May (3.2) 1.3 (3.3) House Price Growth Sep (5.1) 1.7 (6.1) Apartment Price Growth Sep (4.4) 1.0 (5.9) Retail Trade Growth Dec (3.6) 2.6 (4.0) - Food Dec (4.1) 3.9 (3.7) - Dept Stores Dec (0.3) 0.6 (0.2) - H/H Goods Dec (2.6) 0.2 (3.8) - Clothing Dec (3.0) 1.2 (4.3) - Cafes Dec (5.4) 5.1 (6.5) Source: ABS / Savills Research. Note: 10yr Average shown in brackets 12

13 February 2018 Sales Activity NSW Retail investment flows ($5m+) reached $4.12 billion during 2017, representing an 86% increase on 2016 and the highest level of the last decade. Growth in activity underpinned the record numbers seen nationally, accounting for almost half of total $9.17 billion captured during the year. Activity was consistent through the year as institutions traded assets, mostly $100 million +, with stakes in a number assets changing hands. The largest deal was the $1.1 billion trade between Vicinity and GIC where Chatswood Chase (49%) was swapped for The Galeries (50%), The Strand Arcade (50%) and The Queen Victoria Building (50%). The Large Format sector grew from $202 million in 2016 to a record $1.0 billion in 2017, laying the foundation for strong volumes nationally. Aventus Property Group accounted for almost half of this activity ($436m), with the acquisition of Home Hub Castle Hill and Home Hub Marsden Park. More recently, Fortius acquired Home HQ Artarmon for $140.1 million from Blackstone Property Group. Supply Pipeline NSW The New South Wales supply pipeline is expected to grow steadily from 2018, driven mainly by a wave of new Large Format space and Neighbourhood centres. In contrast, the pipeline for Regional development activity is characterised predominantly by extension projects as investors look to reposition assets over the medium-term. Two Regional centres completed extension projects during 2017, including Narellan Town Centre (36,000sq m) and Macarthur Square Shopping Centre (ca.15,700sq m). New Bunnings space was also prominent in the Large Format category with centres completed in Bellambi (15,600sq m) and Bonnyrigg (15,400sq m). The Large Format sector continues to be a major beneficiary of investment over the next four years, strengthened by a pipeline of new and/or refurbished centres planned by Bunnings and Home Consortium. Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) $4,500m $4,000m $3,500m $3,000m $2,500m $2,000m $1,500m $1,000m $500m $0m Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Other Shops Source: Savills Research (Year to Dec-17) 400, , , ,000 0 Regional Sub Regional Neighbourhood CBD Centre Large Format Shops Source: Cordell/Savills Research (Year to Dec-17) savills.com.au/research 13

14 Savills Research Briefing National Retail VIC Monica Mondkar Associate Director Research Victoria Retail investments in Victoria remain highly sought after due to strong underlying population and economic growth. Pat De Maria Associate Director Retail Investments Victoria Overview VIC Victoria has the highest retail trade growth rates nationally, underpinned by its population and economic growth rates, which are also the highest nationally. However, a slowdown in the retail sector is evident in the state s retail trade data relative to previous years. Higher household debt, weak wage growth and moderating housing construction has impacted discretionary spending in some sub-sectors such as hardware & garden and café & restaurants. A strong rise in full-time jobs points towards sustained consumer demand looking forward. However, transactions will be limited by the availability of assets to purchase and future supply will focus on locations with high population forecasts. Vic Retail Economic Drivers As at AUS Vic GDP / SFD Growth Sep (2.6) 4.2 (3.0) Population Growth Jun (1.7) 2.3 (2.1) Employment Growth Nov (1.6) 3.0 (2.1) Unemployment Rate Nov (5.4) 5.9 (5.6) F/T Earnings Growth May (3.2) 3.7 (3.6) House Price Growth Sep (5.1) 11.5 (6.6) Apartment Price Growth Sep (4.4) 6.2 (4.4) Retail Trade Growth Dec (3.6) 4.3 (4.0) - Food Dec (4.1) 2.8 (4.5) - Dept Stores Dec (0.3) 4.7 (1.0) - H/H Goods Dec (2.6) 3.7 (3.5) - Clothing Dec (3.0) 3.2 (3.2) - Cafes Dec (5.4) 3.8 (5.2) Source: ABS / Savills Research. Note: 10yr Average shown in brackets 14

15 February 2018 Sales Activity VIC Retail sales volumes ($5m+) declined 20% in the 12 months to December 2017 to $1.46 billion, yet were 5% above the 10- year average. Results were tempered due to a lower volume of stock offered for sale. In 2017, 31 shopping centres were sold compared to 35 in As technology-driven disruption rises in the retail sector, investors are becoming discerning with their selection of assets, favouring prime assets with long covenants, a trend which is likely to grow stronger and impact future sales volume. Regional and Sub-Regional centres accounted for nearly half of the transaction volume ($703 million) across just two sales. These remain highly sought-after asset classes, reflected by Highpoint shopping centre s sale (25% share) to GPT for $660 million on a tight yield of 4.21%, also the largest transaction of 2017 in Victoria. Trusts dominated the buyer type, accounting for 45% share of the total sales. Supply Pipeline - VIC Customer expectations to match global trends as well as competition from online sales has encouraged many landlords to redevelop or expand their centres. Supply in 2017 was driven by construction activity in both Neighbourhood and Sub-Regional centre categories. The most prominent development completed recently in the Sub-Regional category includes Tarneit Central (25,000sq m), while five new Neighbourhood centres also opened over the same period. Additionally, three Neighbourhood centres expanded their floor space to meet increasing demand from rising population in the state. Forecast supply pipeline is expected to moderate over the next two years with major supply coming online through the refurbishment and expansion works at Westfield Knox and the Jam Factory by the end of the year Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) $3,000m Regional Sub Regional Large Format City Centre $2,500m Freestanding Neighbourhood Other Shops $2,000m $1,500m $1,000m 100,000 80,000 60,000 40,000 Regional Sub Regional Neighbourhood Large Format $500m 20,000 $0m Source: Savills Research (Year to Dec-17) Source: Cordell/Savills Research (Year to Dec-17) savills.com.au/research 15

16 Savills Research Briefing National Retail QLD The investment appetite for shopping centre opportunities across Queensland matches the gains we are beginning to see in the economy. Peter Tyson National Director Retail Investments Queensland Overview QLD Positive signs are emerging in Queensland on the back of improvements in commodity prices and record export growth. The turnaround in business investment after the wind-down in LNG construction works has been earlier than anticipated. Further improvements are expected in Most telling is the rise of interstate migration numbers, which are now the largest since 2008 and more recently, the upswing in job ads. As a result, the population growth rate is at its highest year-on-year growth rate since December Most of the gains seen recently have been stronger than expected supporting an improved long-term outlook for the state. QLD Retail Economic Drivers As at AUS Qld GDP / SFD Growth Sep (2.6) 3.0 (2.0) Population Growth Jun (1.7) 1.6 (1.8) Employment Growth Nov (1.6) 4.8 (1.4) Unemployment Rate Nov (5.4) 6.1 (5.6) F/T Earnings Growth May (3.2) 2.5 (3.7) House Price Growth Sep (5.1) 4.0 (2.9) Apartment Price Growth Sep (4.4) 1.1 (1.7) Retail Trade Growth Dec (3.6) 0.4 (3.1) - Food Dec (4.1) 1.7 (4.5) - Dept Stores Dec (0.3) -0.5 (0.3) - H/H Goods Dec (2.6) 3.2 (1.6) - Clothing Dec (3.0) -0.2 (2.5) - Cafes Dec (5.4) -2.9 (3.3) Source: ABS / Savills Research. Note: 10yr Average shown in brackets 16

17 February 2018 Sales Activity - QLD Queensland retail investment activity reached its highest level in the last decade with $2.7 billion in sales ($5m+) recorded in the year to December The state accounted for almost 30% of national investment volumes and represented a 28% rise on More than half of the total value invested was for assets in the $100 million + segment, a trend which hasn t been seen since The sale of Indooroopilly Shopping Centre (50%) for $795 million to AMP Capital Investors was the largest transaction for 2017, elevating Regional sale volumes to a decade high. The upswing in investment volumes during 2017 follows two strong years of sales through 2015 and 2016, on the back of institutions trading and off-shore investors buying. Supply Pipeline QLD The Queensland supply pipeline is expected to pick-up from 2019 onwards. Recent completed 2017 Regional developments include Dexus Willows Shopping Centre extension in Townsville (33,800sq m) and Scentre Group s Westfield Chermside extension (33,000sq m), which is now their largest Australian asset (156,000sq m). New Large Format supply is set to feature in the Queensland supply pipeline. The majority can be attributed to Bunnings (ca. 140,000sq m), however, Home Consortium is starting to ramp up conversions of former Masters stores. Expect to see a surge in new Neighbourhood development projects in 2019, with more than 20 centres in the pipeline. Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) $3,000m Regional Sub Regional Large Format City Centre $2,500m Freestanding Neighbourhood Other Shops $2,000m 300, , ,000 Regional Sub Regional Neighbourhood Large Format $1,500m $1,000m $500m $0m 150, ,000 50, Source: Savills Research (Year to Dec-17) Source: Cordell/Savills Research (Year to Dec-17) savills.com.au/research 17

18 Savills Research Briefing National Retail WA Billions of dollars are being invested in redeveloping Perth s shopping centres, reflecting a high level of longterm confidence in the state s retail sector. Chris Ireland Director Retail Investments/Services Perth Overview WA There have been improvements in the state s economy but it is segmented, with retail sales growth still weak in the wake of low wages growth. There are green shoots emerging, with the labour market showing signs of improvement, particularly in transport and logistics job advertisements, suggesting that e-commerce, in addition to lower levels of disposable income is still placing some pressure on household spending in the short-term. On the supply-side, there are significant developments both in shopping centres and the city centre, indicating confidence on the ground for long-term performance. WA Retail Economic Drivers As at AUS WA GDP / SFD Growth Sep (2.6) -4.2 (2.0) Population Growth Jun (1.7) 0.8 (2.1) Employment Growth Nov (1.6) 2.8 (1.6) Unemployment Rate Nov (5.4) 6.0 (4.8) F/T Earnings Growth May (3.2) 0.0 (4.2) House Price Growth Sep (5.1) -3.1 (0.5) Apartment Price Growth Sep (4.4) -6.9 (0.7) Retail Trade Growth Dec (3.6) -0.1 (3.3) - Food Dec (4.1) 0.9 (3.8) - Dept Stores Dec (0.3) -0.6 (-0.2) - H/H Goods Dec (2.6) -6.3 (1.4) - Clothing Dec (3.0) -0.3 (-1.0) - Cafes Dec (5.4) 5.9 (6.6) Source: ABS / Savills Research. Note: 10yr Average shown in brackets 18

19 February 2018 Sales Activity WA Retail investment volumes ($5m+) have surpassed 2016 by 5% to reach $614 million in the year to December While activity has been predominantly led by Large Format sales, volumes were boosted following the sale of a 50% stake in Rockingham Centre to AMP Capital Investors in November for $300 million. GDI Property recently acquired Ikea Perth for $143.5 million. Other major Large Format sales include Australasian Property Investments (APiL) acquisitions of Joondalup Gate for $57.8 million from a local syndicate and 5 Clayton Street, Midland for $30.75 million from Primewest. Neighbourhood centres remain tightly held with limited activity reported in 2017 compared to the previous five years. Any unfulfilled demand in this segment is likely to be redirected into opportunities over the next 12 to 18 months. Supply Pipeline WA A spate of shopping centre redevelopments is underway or in planning across the state. The shift in planning follows growing competition from online retail, population growth and the state government legislation changes which previously capped retail space to 80,000 square metres, finally being removed. Representing upwards of $3 billion in investment in the Perth market, many of the centres being redeveloped have not had any refurbishments or upgrades for years. Major redevelopments are also underway in the CBD. Charter Hall is redeveloping Raine Square retail centre through a $240 million project, including the construction of a new hotel tower and cinema. Forrest Chase, owned by ISPT, is undergoing a $100 million redevelopment and upgrades have just been completed at Plaza Arcade to accommodate a two-level tenancy to house Uniqlo, a Japanese retailer making their first foray into Perth market. Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) $1,400m Regional Sub Regional 250,000 Regional Sub Regional Neighbourhood Large Format Large Format City Centre $1,200m Freestanding Neighbourhood 200,000 $1,000m Other Shops $800m 150,000 $600m $400m $200m $0m Source: Savills Research (Year to Dec-17) 100,000 50, Source: Cordell/Savills Research (Year to Dec-17) savills.com.au/research 19

20 Savills Research Briefing National Retail SA Record infrastructure spending is buoying job growth, helping to support investment demand in a market that is traditionally tightly held. Rino Carpinelli Managing Director South Australia Overview SA There are a number of green shoots emerging in South Australia, with the State Government boosting its infrastructure program to create jobs during the transition period between naval shipbuilding and the closure of manufacturing. This has already buoyed job growth, with the state recording the largest year-on-year growth rate nationally in job advertisements in recent months. While this has yet to significantly change consumer spending, employment is growing and overall confidence is improving. Retail trade numbers are up, and some sectors such as Household Goods and Clothing sales are out-performing the national average. SA Retail Economic Drivers As at AUS SA GDP / SFD Growth Sep (2.6) 3.6 (2.0) Population Growth Jun (1.7) 0.6 (0.9) Employment Growth Nov (1.6) 1.3 (0.7) Unemployment Rate Nov (5.4) 6.3 (6.0) F/T Earnings Growth May (3.2) 2.5 (3.7) House Price Growth Sep (5.1) 0.7 (2.9) Apartment Price Growth Sep (4.4) 4.2 (2.8) Retail Trade Growth Dec (3.6) 4.9 (3.0) - Food Dec (4.1) 3.2 (4.0) - Dept Stores Dec (0.3) -0.4 (-1.2) - H/H Goods Dec (2.6) 6.7 (0.3) - Clothing Dec (3.0) 6.4 (2.9) - Cafes Dec (5.4) 8.7 (4.6) Source: ABS / Savills Research. Note: 10yr Average shown in brackets 20

21 February 2018 Sales Activity SA Total retail sale volumes ($5m+) in the year to December 2017 amounted to $230 million. Sales are below the previous 12 months, however, Adelaide doesn t traditionally turn over high volumes due to the tightly held nature of the market. A number of non-metropolitan deals were reported, mostly offmarket, including the sale of Charter Hall s Wharflands Plaza to a local private syndicator for $21 million and Primewest s acquisition of Pirie Plaza for $32.05 million. Harmony Property Syndication group acquired Woolworths Gawler for $32.05 million, also off-market. In the Large Format segment, Axiom Properties sold Churchill South (Kilburn) for $22.35 million, a centre they started developing back in 2011 on land which also houses Bunnings, later sold. In December, Axiom also announced an agreement for conditional sale of their 50% interest in Churchill North Shopping Centre to Inheritance Capital Asset Management for $42.5 million. Supply Pipeline SA There is a limited new shopping centre development pipeline in Adelaide, with recent construction activity mostly being led by centre additions and refurbishments. Aldi leased Harris Scarfe s former department store tenancy after they relocated to a new store within the centre in July The new fitout for Aldi is due to be completed in Westfield Tea Tree Plaza Shopping Centre is currently being extended to include a new cinema, restaurants and leisure complex, to be complete in Following the completion of 14 specialty stores and a fresh food precinct in 2016, the balance of upgrades to Westfield Marion are unlikely to commence prior to Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) $600m Regional Sub Regional Large Format City Centre $500m Freestanding Neighbourhood Other Shops $400m $300m $200m 50,000 40,000 30,000 20,000 Regional Sub Regional Neighbourhood Large Format $100m 10,000 $0m Source: Savills Research (Year to Dec-17) Source: Cordell/Savills Research (Year to Dec-17) savills.com.au/research 21

22 Savills Research Briefing National Retail Outlook 2018 Nationally a broad cross section of investors have been competing for available stock in recent years, however, the purchaser profile has begun to shift over the last 12 months. Investment volumes have surpassed the highs of 2015 and 2016 and a greater number of Regional centres are trading. Institutional owners have begun to divest non-core assets, mostly in the Neighbourhood centre space, and to redeploy capital for either development or enhancement of core assets in their existing portfolios. National Neighbourhood Centre sales increased markedly during 2017 and this trend could potentially run through There has been a change in the type of assets that are trading recently, with Large Format and Neighbourhood centres becoming increasingly competitive. Expect to see a continuation of strong demand across retail generally but prospective purchasers will face greater competition, particularly as Australia s exposure to e-commerce retail rises on the back of Amazon s entry into the market. Additionally, supply-chain and logistics providers may also face greater competition and pressure to transform to keep pace with Amazon s multi-channel strategy. On that note, expect to see further transformation to retail formats across the country on the back significant capital expenditure, mainly in the discretionary retail sectors in order for owners to differentiate their stores by offering greater diversification in the tenancy mix and service offerings. On a state basis, retail trade growth in New South Wales, Victoria, South Australia, Tasmania and the Australian Capital Territory is outperforming the national growth rate, while those states previously exposed to the downturn in the resources and mining sector, Queensland, Western Australia, and to some extent the Northern Territory are underperforming. There are green shoots in Western Australia and Queensland, especially on the labour front, with improvements in commodity prices and record export growth driving a positive outlook for 2018 and beyond. Population growth in Sydney and Melbourne will continue to fuel both investment demand and retail trade performance through Employment has been rising in all states but wage growth remains low. This may continue for some time, raising some concerns for discretionary retail centre owners, at least in the short-term. While the most active net sellers through the last three years have been institutional (funds, trusts) and foreign investors, 2018 may see the private sector trade assets in markets where the peak of the market is approaching. Brisbane, Perth and to some extent Adelaide, are potentially nine to 12 months behind in that cycle to the extent that the investor profile will be two-tiered nationally. 22

23 February 2018 Key 2017 Transactions by Sector Recent Sales Regional Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m (50%) Indooroopilly SC, QLD Commonwealth Superannuation Corp. (25%) Highpoint SC, VIC Besen Group AMP Capital (1) Nov , e 13,835 GPT Wholesale Shopping Centre Fund Jul , e 17,154 (49%) Chatswood Chase, NSW (2) Vicinity Centres GIC Nov-17 63, r 18,011 (50%) Rockingham SC, WA Vicinity Centres AMP Capital Investors Nov-17 62, i 9,629 (50%) Kawana Shoppingworld, QLD Mirvac Group ISPT Dec-17 38, r 9,687 Source: Savills Research; i = Initial, e = Equated, r = Reported; (1) On behalf of AMP Capital Shopping Centre Fund (25%) and AMP Capital Diversified Property Fund (25%); (2) Exchange of a 49% stake in Vicinity s Chatswood Chase Sydney for a 50% stake in GIC s Queen Victoria Building, The Galeries and The Strand Arcade Recent Sales Sub-Regional Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m Salamander Bay Centre, NSW Vicinity Centres Charter Hall May-17 23, e 7,419 Marketown SC, NSW Cartier Group AMP Capital Jun-17 26, e 6,276 Town Square Redbank Plains, QLD Alceon CapTrans JV Rockworth Capital Partners Jan-17 26, i 5,970 (50%) East Village, NSW Private Developer Mirvac Aug-17 33,000 n.a n.a 9,393 Wodonga Plaza, VIC Vicinity Centres M/Group Jun-17 17,503 n.a n.a 2,485 (50%) Churchill North SC, SA Axiom Properties Muswellbrook Marketplace, NSW Private Investor Inheritance Capital Asset Management Muswellbrook Shire Council Dec-17 32,887 n.a n.a 2, May-17 12, e 2,668 Pirie Plaza, SA Private Investor Primewest Sep-17 11, e 2,906 Source: Savills Research; i = Initial, e = Equated, r = Reported; Recent Sales City Centre Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m (50%) Queen Victoria Building, (50%) The Galeries, (50%) The Strand Arcade, GIC Vicinity Centres Nov-17 39, r n.a Sydney NSW (2) Source: Savills Research; i = Initial, e = Equated, r = Reported; (2) Exchange of a 49% stake in Vicinity s Chatswood Chase Sydney for a 50% stake in GIC s Queen Victoria Building, The Galeries and The Strand Arcade. savills.com.au/research 23

24 Savills Research Briefing National Retail Key 2017 Transactions by Sector (continued) Recent Sales Neighbourhood (Top 20 Sales by Value) Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m Pittwater Place, NSW DB Bank QIC Oct-17 12, i 8,103 Marketplace Warner, QLD Private Investor AMP Capital Investors Oct-17 11, i 6,827 Bathurst City Centre, NSW Vicinity Centres QIC Oct-17 12, r 5,666 Chester Square, NSW Private Investor Private Investor Sep-17 8, i 8,283 Mango Hill Market Place, QLD Private Investor ISPT Nov-17 7, i 7,759 Albany Creek Square, QLD Charter Hall Fortius Nov-17 10, i 5,550 Bluewater Square, QLD Alceon Elanor Investors Nov-17 10, i 5,523 Benowa Village, QLD Coles Property Group Private Investor (China) Oct-17 6, r 7,835 Arena SC, VIC Parklea Developments Private Investor (China) Apr-17 8, e 5,906 Worongary Town Centre, QLD AHC SCA Property Group Jun-17 7, r 6,525 Century City Walk SC, VIC Challenger Group iprosperity Group May-17 8, r 5,388 Woodcroft Village, NSW Haben Property Group Private Investor Sep-17 4, r 9,392 Peregian Springs, QLD Private Investor ISPT Aug-17 4, i 8,697 Entrada SC, NSW Broadway Plaza, NSW Centennial Property Group PPB Advisory Cook Property Group Jul-17 5, r 7,418 Real Estate Management Group Mar-17 8, e 4,872 Highfields Village, QLD Private Investor Charter Hall Retail REIT Jun-17 10, e 3,976 Illawong Village, NSW Private Investor Private Investor Sep-17 6, r 6,181 Clifton Village, QLD Arkadia IBA Nov-17 7, i 4,557 Mudgeeraba Market, QLD Private Investor SCA Property Group May-17 6, i 5,876 Park Village, QLD Premier Pacific Private Investor Jun-17 6, r 5,482 Source: Savills Research; i = Initial, e = Equated, r = Reported; 24

25 February 2018 Key 2017 Transactions by Sector (continued) Recent Sales Large Format (Top 20 Sales by Value) Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m Home Hub Castle Hill, NSW Lasalle Investment Management Aventus Retail Property Fund May-17 51, i 6,470 IKEA, WA Cebas Pty Ltd GDI Property Group Feb-17 26, r 5,415 Home HQ Artarmon, NSW Aventus Retail Property Fund Fortius Dec-17 22, i 6,311 Brickworks Centre, Southport, QLD Private Investor AMP Capital Investors Aug-17 15, e 8,681 Home Hub Marsden Park, NSW Lasalle Investment Management Aventus Retail Property Fund May-17 19, i 5,042 Bunnings Carringbah, NSW # Wesfarmers CBRE Global Investors Nov-17 14, r 4,601 Joondalup Gate, WA Private Syndicate Australiasian Property Investments (APiL) Jan-17 24, i 2,356 Bunnings Bonnyrigg, NSW # Wesfarmers CBRE Global Investors Nov-17 12, r 4,601 West Gosford Hometown, NSW Harrington Property Primewest Dec-17 15, e 2,833 Hunter Supa Centre, NSW Sentinel Property Group Primewest Jan-17 19, e 2,113 Tweed Hub, NSW 5 Clayton St, Midland, WA Primewest Aventus Retail Property Fund MPG Dec-17 9, r 4,107 Australiasian Property Investments (APiL) Jul-17 9, i 3,161 Good Guys Carringbah, NSW Private Investor Private Investor Sep-17 5, i 5,288 Bunnings Windsor Gardens, SA # Wesfarmers CBRE Global Investors Nov-17 13, r 1,992 Bunnings Mernda, VIC RCL Group Private Investor Dec-17 15, r 1,667 Kilburn South, SA Axiom Properties Private Investor Sep-17 7, e 3,019 Shepparton Home, VIC David Witton Dr, Noarlunga Centre, SA Aventus Retail Property Fund Syndicate Dec-17 13, r 1,464 Private Investor Private Investor Feb-17 7, i 2,348 3 Montpelier Rd, Bowen Hills, QLD Private Investor Unified Property Group Jul-17 3, e 4,775 Woolcock St Super Stores, Currajong, QLD Private Developer Properties & Pathways Jul-17 2, e 6,864 Source: Savills Research; i = Initial, e = Equated, r = Reported; # Sold as part of a portfolio of four Bunnings Warehouse retail properties across Australia and New Zealand savills.com.au/research 25