STATE OF THE MARKET - MGV · REGIONAL 24 Mths 12-24 Mths 12-24 Mths 12-18 Mths 24-36 Mths...
Transcript of STATE OF THE MARKET - MGV · REGIONAL 24 Mths 12-24 Mths 12-24 Mths 12-18 Mths 24-36 Mths...
AUSTRALIAN RETAIL INVESTMENT MARKETHAMISH MCKNIGHTDIRECTOR | RATING & TAXATIONREAL ESTATE ADVISORY
OCTOBER 2018
STATE OF THE MARKET
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MARKET GROWTH: COMPONENTS OF GROWTH, AUSTRALIA – YE SEPTEMBER 1997-2017
Nominal - Total2.7%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
1997 2001 2005 2009 2013 2017
Population Real Spend Per Capita RPI Nominal - Total
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POPULATIONPOPULATION GROWTH – AUSTRALIA – 1997-2017
POPULATION GROWTH INCREASING
0
100
200
300
400
500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017M
ovin
g An
nual
Pop
ulat
ion
Gro
wth
Population Change on Previous Year Natural Increase Net Overseas Migration
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NATIONAL ECONOMYREAL GDP GROWTH – AUSTRALIA – 1998-2017
UNEMPLOYMENT RATE – AUSTRALIA – 1997-2017
20175.45%
5.7%
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
GDP GROWTH AND UNEMPLOYMENT RATE TRENDING AT LONG-TERM AVERAGES
20172.8%
3.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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NATIONAL ECONOMYHOUSEHOLD DEBT TO INCOME RATIO – AUSTRALIA – 1999-2017
WAGE GROWTH – AUSTRALIA – 1999-2017
DEBT & LOW WAGES GROWTH ARE MAJOR HANDBRAKES
2017193.7%
156.1%
100%110%120%130%140%150%160%170%180%190%200%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
20172.01%
3.3%
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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CONSUMERS & CONSUMPTIONRETAIL SHARE OF CONSUMPTION – AUSTRALIA – 1997-2017
CHANGING CONSUMPTION BASKET – AUSTRALIA – 10 YEAR & 7 YEAR CHANGE
RETAIL’S SHARE OF TOTAL HOUSEHOLD CONSUMPTIONHARD HIT OVER TWO DECADES
-2.7% pts
+2.8% pts
+0.9% pts
+2.4% pts
-2.0% pts
-0.7% pts
-1.9% pts
-4.0% pts
-3.0% pts
-2.0% pts
-1.0% pts
+0.0% pts
+1.0% pts
+2.0% pts
+3.0% pts
+4.0% pts
Retail Housing andFinance
Utilities Health andEducation
Transport Communication Recreation
Last 10 Years ChangeLast 7 Years Change
201734.3%
36.7%
30.0%31.0%32.0%33.0%34.0%35.0%36.0%37.0%38.0%39.0%40.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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KEY OUTTAKES:
WAGE GROWTH IS LOW BUT EXPECTED TO INCREASE
CONSUMER CONFIDENCE IS BENIGN
GDP GROWTH IS SUBDUED
POPULATION GROWTH IS AT RISK
DISRUPTERS ARE AFFECTING BRICKS AND MORTAR RETAIL
UNDER NORMAL CIRCUMSTANCE WE’D WEATHER BUT WITH RETAIL PRICE GROWTH IS LOW IT’S A PERFECT STORM
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SUMMARY:
THE SHORT-MEDIUM TERM OUTLOOK REMAINS SUBDUED UNLESS ECONOMIC CONDITIONS IMPROVE
DISCRETIONARY RETAILING WILL CONTINUE TO BE WILL BE CHALLENGED
POPULATION GROWTH WILL BE AN IMPORTANT DRIVER OF DEMAND
RISING INTEREST RATES THREATEN RETAIL EXPENDITURE
HOW IS THIS TRANSLATING IN RETAIL CENTRES
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THE IMPACT OF CAPITAL EXPENDITURE
TOTAL RETAIL TURNOVER GROWTH BY TIME OF LAST DEVELOPMENT – FY17REGIONAL CENTRES THAT HAVE EXPANDED WITHIN LAST 5 YEARS TYPICALLY ACHIEVED HIGHER GROWTH IN 2017
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%0-5 5-10 10+
Exceptions are due to recent competitor and economy impacts
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THE IMPACT OF CAPITAL EXPENDITURE
OUTDOOR DINNING PRECINCTSCENTRES AREREMIXING TOMAINTAINRELEVANCY
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THE IMPACT OF CAPITAL EXPENDITURE
MINI-MAJORS THE NEW ANCHORSTHE ALTERNATIVE TO DEPARTMENT STORES
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THE IMPACT OF CAPITAL EXPENDITURE
MINI-MAJORS THE NEW ANCHORSBUT AT WHAT COST
2 YEARS RENT FREE
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THE IMPACT OF CAPITAL EXPENDITURE
INCENTIVESDEPARTMENT
STORES MAJORS MINI-MAJORS SPECIALTY SPECIALTY(FOOD CATERING)
REGIONAL 24 Mths 12-24 Mths 12-24 Mths 12-18 Mths 24-36 Mths
SUB-REGIONAL - 12-24 Mths 12-24 Mths 9-12 Mths 18-24 Mths
NEIGHBOURHOOD - 12-24 Mths - 3-6 Mths 6 Mths
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THE IMPACT OF CAPITAL EXPENDITURE
CAPPED OCCUPANCY COSTS (PLANNED REBATES) & INCENTIVESLEASE INCENTIVE - RENTAL REBATE YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Tenant: Spendless Shoes Gross Face Rent: $90,000 $94,500 $99,225 $104,186 $109,396
Lease Term: 5 Year Planned Rebate: $45,000 $45,000 $45,000 $0 $0
Rent Review: Fixed 5% Annual Gross Effective Rent: $62,817 -30.2%
LEASE INCENTIVE - FITOUT CONTRIBUTION YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Tenant: HartCo. Homewares Gross Face Rent: $85,250 $89,513 $93,988 $98,688 $103,622
Lease Term: 5 Year Incentive: $85,250 $0 $0 $0 $0
Rent Review: Fixed 5% Annual Gross Effective Rent: $68,914 -19.2%
LEASE INCENTIVE - FITOUT CONTRIBUTION & RENTAL REBATE YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Tenant: H&M Gross Face Rent: $540,000 $567,000 $595,350 $625,118 $656,373
Lease Term: 5 Year Incentive + Planned Rebate: $1,135,000 $141,750 $148,838 $0 $0
Rent Review: Fixed 5% Annual Gross Effective Rent: $249,669 -53.8%
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THE IMPACT OF CAPITAL EXPENDITURE
LEASE INCENTIVE - FITOUT CONTRIBUTION & RENTAL REBATE YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Tenant: H&M Gross Face Rent: $540,000 $567,000 $595,350 $625,118 $656,373
Lease Term: 5 Year Incentive + Planned Rebate: $1,135,000 $141,750 $148,838 $0 $0
Rent Review: Fixed 5% Annual Gross Effective Rent: $249,669 -53.8%
Outgoings $450,000
Net Rental Income -$200,331
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INVESTMENT MARKET:
RETAIL PERFORMANCE
MARKET SNAPSHOT
KEY TRANSACTIONS
RETAIL PERFORMANCE
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REGIONAL SHOPPING CENTRESREGIONAL CENTRES – CHANGE IN MAT (SAME CENTRE)
DEPARTMENT STORES & DDS CONTINUE TO STRUGGLE
+0.8%SPECIALTY SHOPS
+4.1%MINI-MAJORS
-0.7%DEPARTMENT STORES
DDS
-5.8%+3.4%SUPERMARKETS
Homewares 10.6%
Retail Services 10.1%
Food Catering 2.1%
Jewellery 1.5%
Food Retail 1.3%
Apparel 0.7%
General Retail 0.0%
Mobile Phones -4.8%
Leisure -18.8%
RETAIL SPECIALTIES
+ 1.3%TOTAL RETAIL
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SUB-REGIONAL SHOPPING CENTRESSUB-REGIONALS – CHANGE IN MAT (SAME CENTRE)
SUB-REGIONAL SHOPPING CENTRES ARE REBOUNDING DDS
+0.4%
+2.6%SUPERMARKETS
16.1%MINI-MAJORS
+2.0%SPECIALTY SHOPS
Retail Services 10.4%
Food Catering 7.7%
Mobile Phones 2.7%
Jewellery 1.2%
General Retail 0.6%
Food Retail -1.5%
Apparel -1.6%
Leisure -3.7%
Homewares -6.2%
RETAIL SPECIALTIES
+ 2.9%TOTAL RETAIL
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SUPERMARKET SHOPPING CENTRESSUPERMARKETS – CHANGE IN MAT (SAME CENTRE)
CENTRES REMIXING TO STAY RELEVANT -0.1%
SUPERMARKETS
+0.9%MINI-MAJORS
+0.9%SPECIALTY SHOPS
Homewares 10.6%
Food Catering 8.9%
Retail Services 5.4%
Apparel -0.6%
General Retail -1.0%
Food Retail -1.3%
Leisure -5.3%
Jewellery -9.0%
Mobile Phones -13.7%
RETAIL SPECIALTIES
+ 0.4%TOTAL RETAIL
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CBD SHOPPING CENTRESCBD CENTRES – CHANGE IN MAT (SAME CENTRE)
MAJORS STRUGGLED IN CITY CENTRES
Retail Services 19.5%
Food Catering 5.7%
General Retail 4.4%
Jewellery 3.0%
Food Retail -1.0%
Apparel -4.3%
Leisure -6.9%
Homewares -18.1%
Mobile Phones -22.9%
+0.3%SPECIALTY SHOPS
+2.4%MINI-MAJORS
-1.9%DEPARTMENT STORES
DDS
-13.4%-5.4%SUPERMARKETS
RETAIL SPECIALTIES
+ 0.1%TOTAL RETAIL
MARKET SNAPSHOT
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INCENTIVES
• REMAIN FLAT(New tenants
achieving reductions –
Sitting tenants renewing at
existing rent)
RENTSCAPITALISATION RATES
• STRATEGIC TENANT REMIX
• FUTURE GROWTH
CAPITAL PLACEMENT
• TWO TIER MARKET
• METRO VS REGIONAL
• LACK OF SUPPLY• VALUE
ACCRETIVE REDEVELOPMENT
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MARKET PRICING REFLECTING LONG TERM PRICING SHIFT
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RETAIL PRICING METRICS
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VICINITY PORTFOLIO
STATE TYPE OCCUPANCY PURCHASE PRICE
IMPLIED FULLY LET YIELD
Warnbro Centre WA Sub-Regional 99.3% $92.9M 8.16%
Currambine Central WA Neighbourhood 98.7% $91.0M 7.48%
Stirlings Central WA Neighbourhood 97.8% $44.0M 7.97%
Kalamunda Central WA Neighbourhood 94.4% $41.5M 6.93%
Bentons Square VIC Neighbourhood 95.1% $77.0M 6.71%
The Gateway VIC Neighbourhood 98.9% $50.0M 6.49%
West End Plaza NSW Sub-Regional 100.0% $66.0M 7.38%
Lavington Square NSW Sub-Regional 96.8% $52.0M 9.53%
Oxenford Village QLD Neighbourhood 99.9% $32.5M 6.70%
North Shore Village QLD Neighbourhood 100.0% $26.1M 6.15%
KEY TRANSACTIONS
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REGIONAL KEY TRANSACTIONS
PACIFIC EPPING & WERRIBEE
SALE PRICE $1 billion (50%)PURCHASER QICVENDOR Pacific Group of CompaniesEQUIVALENT YIELD RANGE Sub 4.25%10 YEAR IRR 7.57%
“FYE18 saw a high number of Regional centre sales,
with seven part sales recorded, representing
approximately 40% of the retail investment market”…”
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KEY TRANSACTION
INDOOROOPILLY SHOPPING CENTRE
SALE PRICE $800 million (50%)PURCHASER AMP CapitalVENDOR Eureka Real AssetsEQUIVALENT YIELD Sub 4.5%10 YEAR IRR 7.57%
“Indooroopilly represents the largest single asset
retail transaction and is the first super regional sale with management rights in over
a decade”…”
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KEY TRANSACTION
BRANDON PARK SHOPPING CENTRE
SALE PRICE $135 million (100%)PURCHASER Newmark CapitalVENDOR Vicinity Centres & Telstra SuperINITIAL YIELD 7.11%$/ SQM GLAR $5,870
“After a lengthy period on market, the sale represented a 3.8% premium to book value and is one of only four sub
regional transactions in metro Melbourne since 2015”…”
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KEY TRANSACTION
ROCKINGHAM CENTRE
SALE PRICE $305 million (50%)PURCHASER AMP CapitalVENDOR Future Fund & Canada Pension Plan Investment Board EQUIVALENT YIELD Reported 5.25% - 5.50%INITIAL YIELD 5.75%
“The Future Fund and CPPIB have divested two
50% shares in Rockingham and Grand Plaza in
Brisbane to a separate purchaser”…”
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KEY TRANSACTION
HIGHPOINT SHOPPING CENTRE
SALE PRICE $680 million (25%)PURCHASER GPTVENDOR Besen FamilyEQUIVALENT YIELD 4.00%10 YEAR IRR 6.25%$ PER SQM GLAR $17,600
“The purchase price reflected a 10% premium to
the GPT June 30 book value”…”
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KEY TRANSACTION
HOME HUB CASTLE HILL & MARSDEN PARK
SALE PRICE $436 million (combined)PURCHASER Aventus PropertyVENDOR LaSalle Investment ManagementEQUIVALENT YIELD 5.50% / 5.80%10 YEAR IRR 7.50% / 7.90%
“Large format retail has emerged as a market that
has gained momentum throughout 2017 with
several transactions setting new benchmarks for the
market”…”
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SUMMARY:DISCRETIONARY RETAILING WILL CONTINUE TO BE CHALLENGED
POPULATION GROWTH WILL BE AN IMPORTANT DRIVER OF DEMAND - CRITICAL TO DIVERSIFY OFFER TO MAXIMISE PERFORMANCE
SHIFT TOWARDS TWO TIER MARKET
PART SHARE INVESTING CONTINUES
CAPITAL REINVESTMENT TO VALUE ACCRETIVE DEVELOPMENT