Briefing National Retail - May 2018

Briefing National Retail - May 2018

Briefing National Retail - May 2018

Briefing National Retail May 2018 Savills Research Australia Report Contents Executive Summary 2 Key Market Indicators 4 Retail Trade 6 Regional Centres 8 Sub-Regional Centres 9 Neighbourhood Centres 10 Large Format Retail 11 NSW 12 VIC 14 QLD 16 SA 18 WA 20 Outlook 2018 22 Key Transactions 23 Key Contacts 26

Briefing National Retail - May 2018

2 Savills Research | Briefing National Retail Executive Summary 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 globally.

Direct investment over the three years to March 2018 reached AU$25.4 billion, up from AU$19.2 billion in the three years to March 2015. Buoyed by asset sales in the $200 million+ segment in New South Wales and Queensland, any indication of investment volumes receding in the first half of 2017, were quickly dismissed with 12 month volumes to March 2018 surpassing expectations to reach AU$9.1 billion, a 21% increase on 2017 volumes, and the highest level recorded for the decade (as at March).

There has been a noticeable change in strategy of net sellers in most markets to reweight and/or redeploy capital towards core and core-plus. This has created opportunity for investors actively seeking value-add retail assets and purchaser and vendor profiles are beginning to shift. In contrast to 2015 and 2016, capital flows from foreign investors into retail property have begun to moderate with the last 12 months (year to March 2018) characterised predominantly by institutional investors trading assets. This appetite was strongest in the last quarter of 2017 and led to funds and trusts acquiring AU$5.28 billion worth of retail assets ($5m+) for their portfolios, more than double the same period 12 months ago.

Acquisitions by foreign investors accounted for 19% of national investment volumes ($5m+) at AU$1.71 billion. While this is down from a 25% share of total volumes in March 2017 and well below foreign investment levels in the office sector, it is close to the 10-year average suggesting that this cycle of retail investment is beginning to shift at the same time that institutional capital is competitively pursuing strategies to deploy capital into core real estate through direct acquisitions or development.

The weight of capital targeting property has been for assets priced at $100 million+ with more than half of sales ($5m+) recorded in the 12 months to March 2018 in this bracket, well above the decade-average benchmark.

There are some big plays in the market and all going to plan at the end of May, the circa AU$32.8 billion Unibail-Rodamco Westfield deal is indicative of the continued elevated interest in the retail property sector globally. While this is worthy of 'megadeal' status, investment trends over the last 12 months are not showing any signs that interest or volumes are decelerating here. This, we envisage is one driver behind Wesfamers recent announcement of its intention to demerge its Coles division. Potentially benefiting their remaining businesses, the estimated AU$20 billion planned demerger of Coles to independent retailer status, is one that will be closely watched over the coming 12 months.

In this report, we look at the major retail sub-sectors across Australia’s main capital cities focusing on recent investment and development trends. State Summary Table Key State Indicators (%) Latest NSW VIC QLD WA SA ACT AUS SFD / GDP Growth Dec-17 2.9 (2.7) 4.7 (3.0) 3.0 (1.9) -1.8 (2.0) 4.5 (2.0) 3.9 (2.7) 2.3 (2.6) Population Growth Sep-17 1.6 (1.4) 2.4 (2.1) 1.7 (1.8) 0.9 (2.0) 0.6 (0.9) 1.8 (1.9) 1.6 (1.7) Employment Growth Mar-18 3.6 (1.5) 2.5 (2.1) 4.3 (1.4) 2.0 (1.6) 2.1 (0.7) 3.9 (1.5) 3.1 (1.6) Unemployment Rate Mar-18 4.8 (5.3) 5.8 (5.7) 6.0 (5.7) 5.9 (4.9) 6.0 (6.1) 4.0 (3.9) 5.5 (5.5) Inflation Mar-18 2.1 (2.3) 2.2 (2.2) 1.7 (2.3) 0.9 (2.0) 2.3 (2.2) 2.4 (2.1) 1.9 (2.2) Retail Turnover Growth Mar-18 2.6 (4.1) 5.0 (4.0) 1.9 (3.1) -0.5 (3.4) 3.4 (2.7) 1.6 (3.3) 2.7 (3.6) Source: ABS/Savills.

Note: Annual Change shown, 10yr compound average shown in brackets. For our latest national reports, visit savills.com.au/research To join Savills Research mailing list, please email research@savills.com.au Associate Director – Research Katy Dean kdean@savills.com.au Senior Analyst– Research Peter Sutherland psutherland@savills.com.au

Briefing National Retail - May 2018

May 2018 savills.com.au/research 3 Regional Sub-Regional Neighbourhood Large Format Dept Store Gross Rent 215 DDS Gross Rent 235 235 Specialty Tenant Gross Rent 1,570 1,035 770 Mini-Major Gross Rent 1,075 890 440 285 Average Yield 5.30 6.15 6.15 6.85 Average IRR 7.15 7.40 7.35 8.15 Total Outgoings 197 149 123 53 Average Capital Value 10,275 5,250 5,175 3,250 Source: RBA/Savills Research (Year to Mar-18) Note: Rents on gross basis $/sq m, Yield and IRR as percentage. Key Markets – East Coast Averages Trends (Year to Mar-18) Source: ABS/Savills Research (Year to Mar-18) Sales Activity (Year to Mar-18) $9.1bn Retail Trade Growth (Year to Mar-18) 2.7% Supply (Under Construction) 920,790 sq m

Briefing National Retail - May 2018

4 Savills Research | Briefing National Retail Key Market Indicators Although funds and trusts actively utilised this opportunity to acquire over a third of Neighbourhood Centre transactions by value, private investors acquired the largest proportion by value. The Large Format sector was also a major standout at $1.5 billion in transactions, almost double the same time last year and the highest level of the past decade. The change in buyer profile over the last 12 months has had little impact on the yield profiles across the country, with the East Coast markets in particular, still showing signs of yield compression in the March 2018 quarter.

All major markets except Victoria, which is coming off four years of elevated capital inflows, recorded a rise in total investment through the reporting period. While Queensland has had a fairly consistent run over the last four years with annual volumes (year to March) sitting above $2.0 billion on average, New South Wales broke through a new barrier with $4.3 billion in transactions recorded in the 12 months to March 2018 (+$5m) to reach its highest annual total of the last decade. National Sales Activity continued Savills Research | Briefing Note - National Retail Q1/2018 Key Market Indicators Overlay chart above National Sales Activity ($5m+) by State Source: Savills Research (Year to Mar-18) National Sales Activity In contrast to 2015 and 2016, capital flows from foreign investors have begun to moderate with the last 12 months characterised by institutions trading assets.

The share of retail transactions ($5m+) nationally by funds and trusts (by total value) has more than doubled on the same period 12 months ago. The dip in foreign investment inflows into the sector for the first time in three years has not yet impacted overall volumes, which at $9.1 billion in the 12 months to March 2018, is 21% higher than March 2017 year-end volumes and a 10-year record high.

With the big-ticket sales of Indooroopilly SC, Highpoint SC, Rockingham SC and Chatswood Chase, the value of Regional centre transactions reached $2.5 billion, more than threefold the value reported in the previous 12 months. A number of institutional owners are working through strategies to divest non-core retail assets and reshape portfolios through reinvestment in core or core-plus assets, as well as development. This trend has potentially underpinned the rise in Neighbourhood Centre transactions recently, rising from $1.5 billion in March 2017 to $2.0 billion in March 2018. National Transaction Profile Vendors v Purchasers Source: Savills Research (Year to Mar-18) Although funds and trusts actively utilised this opportunity to acquire over a third of this, private investors acquired the largest proportion by value.

The Large Format sector was also a major standout at $1.5 billion in transactions, almost double the same time last year and the highest level of the past decade.

The change in buyer profile over the last 12 months has had little impact on the yield profiles across the country, with the East Coast markets in particular, still showing signs of yield compression in the March 2018 quarter. All major markets surveyed except Victoria, which is coming off four years of elevated capital inflows, recorded a rise in total investment through the reporting period. While Queensland has had a fairly consistent run over the last four years with annual volumes (year to March) sitting above $2.0 billion on average, New South Wales broke through a new barrier with $4.3 billion in transactions recorded in the 12 months to March 2018 (+$5m) to reach its highest annual total of the last decade.

National Sales Activity ($5m+) by Centre Type Source: Savills Research (Year to Mar-18) $0bn $1bn $2bn $3bn $4bn $5bn $6bn $7bn $8bn $9bn $10bn NSW VIC QLD WA SA ACT 0% 20% 40% 60% 80% 100% Purchasers Vendors Fund Trust Developer Owner Occupier Government Syndicate Foreign Investor Private Investor Other $0bn $2bn $4bn $6bn $8bn $10bn Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Shops Other National Sales Activity ($5m+) by State National Sales Activity ($5m+) by Centre Type Source: Savills Research (Year to Mar-18) Source: Savills Research (Year to Mar-18) “NSW and QLD front runners as Australian retail transactions ($5m+) reach a 10-year high.” In contrast to 2015 and 2016, capital flows from foreign investors have begun to moderate with the last 12 months characterised by institutions trading assets.

The share of retail transactions ($5m+) nationally by funds and trusts (by total value) has more than doubled on the same period 12 months ago. The dip in foreign investment inflows into the sector for the first time in three years has not yet impacted overall volumes, which at $9.1 billion in the 12 months to March 2018, is 21% higher than March 2017 year-end volumes and a 10- year record high.

With the big-ticket sales of Indooroopilly SC, Highpoint SC, Rockingham SC and Chatswood Chase, the value of Regional centre transactions reached $2.5 billion, more than threefold the value reported in the previous 12 months. A number of institutional owners are working through strategies to divest non-core retail assets and reshape portfolios through reinvestment in core or core-plus assets, as well as development. This trend has potentially underpinned the rise in Neighbourhood Centre transactions recently, rising from $1.5 billion in March 2017 to $2.0 billion in March 2018. National Sales Activity $0bn $1bn $2bn $3bn $4bn $5bn $6bn $7bn $8bn $9bn $10bn NSW VIC QLD WA SA ACT National Transaction Profile Vendors v Purchasers Savills Research | Briefing Note - National Retail Q1/2018 savills.com.au/research 4 Key Market Indicators Overlay chart above National Sales Activity ($5m+) by State Source: Savills Research (Year to Mar-18) National Sales Activity In contrast to 2015 and 2016, capital flows from foreign investors have begun to moderate with the last 12 months characterised by institutions trading assets.

The share of retail transactions ($5m+) nationally by funds and trusts (by total value) has more than doubled on the same period 12 months ago. The dip in foreign investment inflows into the sector for the first time in three years has not yet impacted overall volumes, which at $9.1 billion in the 12 months to March 2018, is 21% higher than March 2017 year-end volumes and a 10-year record high.

With the big-ticket sales of Indooroopilly SC, Highpoint SC, Rockingham SC and Chatswood Chase, the value of Regional centre transactions reached $2.5 billion, more than threefold the value reported in the previous 12 months. A number of institutional owners are working through strategies to divest non-core retail assets and reshape portfolios through reinvestment in core or core-plus assets, as well as development. This trend has potentially underpinned the rise in Neighbourhood Centre transactions recently, rising from $1.5 billion in March 2017 to $2.0 billion in March 2018. National Transaction Profile Vendors v Purchasers Source: Savills Research (Year to Mar-18) Although funds and trusts actively utilised this opportunity to acquire over a third of this, private investors acquired the largest proportion by value.

The Large Format sector was also a major standout at $1.5 billion in transactions, almost double the same time last year and the highest level of the past decade.

The change in buyer profile over the last 12 months has had little impact on the yield profiles across the country, with the East Coast markets in particular, still showing signs of yield compression in the March 2018 quarter. All major markets surveyed except Victoria, which is coming off four years of elevated capital inflows, recorded a rise in total investment through the reporting period. While Queensland has had a fairly consistent run over the last four years with annual volumes (year to March) sitting above $2.0 billion on average, New South Wales broke through a new barrier with $4.3 billion in transactions recorded in the 12 months to March 2018 (+$5m) to reach its highest annual total of the last decade.

National Sales Activity ($5m+) by Centre Type Source: Savills Research (Year to Mar-18) $0bn $1bn $2bn $3bn $4bn $5bn $6bn $7bn $8bn $9bn $10bn NSW VIC QLD WA SA ACT 0% 20% 40% 60% 80% 100% Purchasers Vendors Fund Trust Developer Owner Occupier Government Syndicate Foreign Investor Private Investor Other $0bn $2bn $4bn $6bn $8bn $10bn Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Shops Other Source: Savills Research (Year to Mar-18)

Briefing National Retail - May 2018

May 2018 savills.com.au/research 5 Source: Cordell/Savills Research (Year to Mar-18) *Pipeline data includes new/additions/redevelopment/refurbishment projects either under construction, in committed stage or in planning. Source: Cordell/Savills Research (Year to Mar-18) The ever changing dynamics of retail are beginning to merge with other property sectors, primarily logistics, and the digital landscape is growing rapidly. In NAB’s online retail sales index for February, it was estimated that shoppers spent as much as $25 billion in the last 12 months, the equivalent of 8% of spending in traditional bricks and mortar retail.

The high-level of investment currently underway in this sector, suggests that physical store formats, especially shopping centre tenancy mix and in-store consumer experiences, will become increasingly competitive and divergent as owners raise the bar on what’s being offered relative to digital channels. Regional centre projects, including redevelopments, account for the largest share of the national pipeline. The Large Format category is also expected to grow strongly, on the back of expansion by Home Consortium and Bunnings. Home Consortium acquired the Masters portfolio in 2016, with Charter Hall acquiring six of these sites leased to Bunnings for circa $188 million last year.

More than 3.4 million square metres is in the pipeline, either under construction, in committed stage or in planning. Approximately 920,000 square metres of this supply is under construction as at the March 2018 quarter. Nationally, two main sectors are driving the activity, with Regional projects accounting for 34.7% of total and Large Format accounting for 27.3%. Neighbourhood projects account for 18.8% and Sub-Regional, 11.7%, with the balance occurring across CBD Centres, Shops, Freestanding and Mixed-Use centres. New South Wales has the largest supply pipeline (38%), with a high proportion at Development Approval (DA) stage.

Recent infrastructure spending is creating opportunities for retail investors, particularly in residential growth corridors, with the volume of new development plans being led by Regional and Large Format centre projects. A similar trend is evident in Queensland, which has the second largest pipeline of works (31.3%). Western Australia accounts for about 21% of planned supply and notably has the highest volume of Regional centre development nationally well above its share of population.

National Retail Supply by Sector National Retail Supply by State Savills Research | Briefing Note - National Retail Q1/2018 National Retail Supply by Sector The ever changing dynamics of retail are beginning to merge with other property sectors, primarily logistics, and the digital landscape is growing rapidly. In NAB’s online retail sales index for February, it was estimated that shoppers spent as much as $25 billion in the last 12 months, the equivalent of 8% of spending in traditional bricks and mortar retail. The high-level of investment currently underway in this sector, suggests that physical store formats, especially shopping centre tenancy mix and in-store consumer experiences, will become increasingly competitive and divergent as owners raise the bar on what’s being offered relative to digital channels.

Regional centre projects, including redevelopments, account for the largest share of the national pipeline. The Large Format category is also expected to grow strongly, on the back of by expansion by Home Consortium and Bunnings. Home Consortium acquired the Masters portfolio in 2016, with Charter Hall acquiring six of these sites leased to Bunnings for circa $188 million last year. National Supply Pipeline by Type (‘000sq m) Source: Cordell/Savills Research (Year to Mar-18) *Pipeline data includes new/additions/redevelopment/refurbishment projects either under construction, in committed stage or in planning.

National Retail Supply by State More than 3.4 million square metres is in the pipeline, either under construction, in committed stage or in planning. Approximately 920,000 square metres of this supply is under construction as at the March 2018 quarter. Nationally, two main sectors are driving the activity, with Regional projects accounting for 34.7% of total and Large Format accounting for 27.3%. Neighbourhood projects account for 18.8% and SubRegional, 11.7%, with the balance occurring across CBD Centres, Shops, Freestanding and Mixed-Use centres. New South Wales has the largest supply pipeline (38%), with a high proportion at Development Approval (DA) stage.

Recent infrastructure spending is creating opportunities for retail investors, particularly in residential growth corridors, with the volume of new development plans being led by Regional and Large Format centre projects. A similar trend is evident in Queensland, which has the second largest pipeline of works (31.3%). Western Australia accounts for about 21% of planned supply and notably has the highest volume of Regional centredevelopment nationally well above the share of population.

National Supply Pipeline by State Share (%) Source: Cordell/Savills Research (Year to Mar-18) 200 400 600 800 1,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format Freestanding NSW ‐ 38.0% VIC ‐ 6.8% QLD ‐ 31.3% SA ‐ 3.2% WA ‐ 20.6% Savills Research | Briefing Note - National Retail Q1/2018 National Retail Supply by Sector The ever changing dynamics of retail are beginning to merge with other property sectors, primarily logistics, and the digital landscape is growing rapidly. In NAB’s online retail sales index for February, it was estimated that shoppers spent as much as $25 billion in the last 12 months, the equivalent of 8% of spending in traditional bricks and mortar retail.

The high-level of investment currently underway in this sector, suggests that physical store formats, especially shopping centre tenancy mix and in-store consumer experiences, will become increasingly competitive and divergent as owners raise the bar on what’s being offered relative to digital channels.

Regional centre projects, including redevelopments, account for the largest share of the national pipeline. The Large Format category is also expected to grow strongly, on the back of by expansion by Home Consortium and Bunnings. Home Consortium acquired the Masters portfolio in 2016, with Charter Hall acquiring six of these sites leased to Bunnings for circa $188 million last year. National Supply Pipeline by Type (‘000sq m) Source: Cordell/Savills Research (Year to Mar-18) *Pipeline data includes new/additions/redevelopment/refurbishment projects either under construction, in committed stage or in planning.

National Retail Supply by State More than 3.4 million square metres is in the pipeline, either under construction, in committed stage or in planning. Approximately 920,000 square metres of this supply is under construction as at the March 2018 quarter. Nationally, two main sectors are driving the activity, with Regional projects accounting for 34.7% of total and Large Format accounting for 27.3%. Neighbourhood projects account for 18.8% and SubRegional, 11.7%, with the balance occurring across CBD Centres, Shops, Freestanding and Mixed-Use centres. New South Wales has the largest supply pipeline (38%), with a high proportion at Development Approval (DA) stage.

Recent infrastructure spending is creating opportunities for retail investors, particularly in residential growth corridors, with the volume of new development plans being led by Regional and Large Format centre projects. A similar trend is evident in Queensland, which has the second largest pipeline of works (31.3%). Western Australia accounts for about 21% of planned supply and notably has the highest volume of Regional centredevelopment nationally well above the share of population.

National Supply Pipeline by State Share (%) Source: Cordell/Savills Research (Year to Mar-18) 200 400 600 800 1,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format Freestanding NSW ‐ 38.0% VIC ‐ 6.8% QLD ‐ 31.3% SA ‐ 3.2% WA ‐ 20.6% National Supply Pipeline by Type ('000sq m) National Supply Pipeline by State Share (%) National Supply Pipeline by Development Stage Under Construction DA Mooted 0% 20% 40% 60% 80% 100% Source: Savills Research (Year to Mar-18)

Briefing National Retail - May 2018

6 Savills Research | Briefing National Retail Retail Trade Growth Retail Trade Growth by State (Mar-18) Retail Trade by Sector (Mar-18) Retail Trade 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% -1% 0% 1% 2% 3% 4% 5% 6% NSW VIC QLD WA SA ACT AUS 1yr 5yr 10yr 15yr 4.2% 3.1% 3.1% 3.0% 2.7% 2.7% 2.5% (0.0%) -1% 0% 1% 2% 3% 4% 5% Hardware & Garden Food Clothing & Footwear Café & Restaurants Other Supermarkets Household Goods Department Stores 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% -1% 0% 1% 2% 3% 4% 5% 6% NSW VIC QLD WA SA ACT AUS 1yr 5yr 10yr 15yr 4.2% 3.1% 3.1% 3.0% 2.7% 2.7% 2.5% (0.0%) -1% 0% 1% 2% 3% 4% 5% Hardware & Garden Food Clothing & Footwear Café & Restaurants Other Supermarkets Household Goods Department Stores 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% -1% 0% 1% 2% 3% 4% 5% 6% NSW VIC QLD WA SA ACT AUS 1yr 5yr 10yr 15yr 4.2% 3.1% 3.1% 3.0% 2.7% 2.7% 2.5% (0.0%) -1% 0% 1% 2% 3% 4% 5% Hardware & Garden Food Clothing & Footwear Café & Restaurants Other Supermarkets Household Goods Department Stores Source: ABS / Savills Research Source: ABS / Savills Research Retail trade grew by 2.7% (in trend terms) over the year to March 2018.

Whilst the strong employment growth witnessed in the latter half of 2017 would likely boost retail turnover, historically, soft wage growth continues to impact consumers’ ability and willingness to spend. Prior to Amazon’s entrance into the Australian retail space, there was much discourse about the effect on existing retailers; however Amazon’s effect has yet to materialise. Although this is in part due to the regional landscape of Australia, prices were not as low as expected owing to higher labour and logistics costs (compared to the US).

Although challenges in the retail sector are still evident, all states and territories, except Western Australia and Northern Territory, recorded gains in the year to March 2018. March retail sales rose by 0.3% (in trend terms). This follows a rise of 0.3% in both January and February. Retail trade growth was the strongest in Victoria, growing 5.0% over the year to March 2018 to outperform its long-term average. Australian retail spending during the traditionally strong Christmas period was far weaker than expected, with price competition keeping total turnover low. With the outlook for household consumption still uncertain over the next six to 12 months, concerns for the retail sector remain.

Broad based gains were evident across all key retail sectors, except for ‘Department Store’ retailing, which remained largely flat over the year to March 2018. There has been a turnaround in ‘Household Goods’ and ‘Hardware & Garden’ retailing over the last quarter, though this was primarily due to increased sales over the Christmas period. After a largely dismal year for Australian retailers in 2017, there are hopes that record employment record growth will translate to increased wages, which in turn will help to drive retail trade in the coming year.

Source: ABS / Savills Research.

Graph reflects annual rolling growth rate.

Briefing National Retail - May 2018

May 2018 savills.com.au/research 7 80 100 120 140 160 180 Total Supermarkets Food Household Goods Clothing & Footwear Department Stores Café & Restaurants Hardware & Garden -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Retail Trade (10yr Indexed) Household Savings Rate Retail Trade by Sector & State - Annual Growth Rate (%) 80 100 120 140 160 180 Total Supermarkets Food Household Goods Clothing & Footwear Department Stores Café & Restaurants Hardware & Garden -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 There was a clear distinction in retail performances across discretionary and non-discretionary retail sectors.

Despite ongoing pricing competition amongst major supermarket chains over the last two years, ‘Supermarket’ retailing has grown by more than 50% over the last 10 years. On the other hand, persistently low consumer sentiment and low wage growth since the Global Financial Crisis has had a dampening effect on non-discretionary retailing. Over the same 10 year period, ‘Department Stores’ retail turnover has remained largely unchanged. Growth in ‘Food and Cafes & Restaurants’ retailing continues to support total retail trade in an otherwise challenging year for Australian retailers. An uptick in residential development approvals in December 2017 had a positive effect on ‘Hardware & Garden’ retailing.

Source: ABS / Savills Research Australia’s household savings rate continues to fall, with the savings ratio recorded at 2.6% in December 2017. Whilst there are concerns that this has been as a result of a wealth effect, the adjoining 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. Supermarket Food Clothing & Footwear Department Stores Household Goods Hardware & Garden Café & Restaurants Other Total NSW 3.4 (4.3) 3.8 (3.9) 1.3 (4.3) -1.4 (0.0) 2.3 (3.8) 4.0 (6.0) 3.9 (6.9) 0.7 (4.3) 2.6 (4.1) VIC 2.7 (4.5) 3.5 (4.5) 6.8 (3.4) 0.7 (0.7) 4.5 (3.5) 5.3 (6.8) 5.8 (5.3) 9.7 (4.4) 5.0 (4.0) QLD 1.9 (4.2) 2.7 (4.4) 1.9 (2.8) 3.1 (0.3) 5.5 (1.9) 9.4 (4.0) -2.2 (3.4) -1.3 (2.6) 1.9 (3.1) WA 0.9 (4.2) 1.1 (4.0) 3.2 (-0.6) -2.2 (-0.2) -6.7 (1.6) -3.7 (2.5) 2.0 (6.5) -0.7 (4.8) -0.5 (3.4) SA 4.5 (4.1) 3.8 (3.9) 1.3 (2.5) 0.0 (-1.3) 3.3 (0.0) 5.6 (0.7) 0.3 (4.6) 0.1 (3.3) 3.4 (2.7) ACT -1.8 (4.9) -1.5 (4.4) 8.0 (3.0) -2.4 (-0.4) 5.7 (2.5) 1.2 (4.7) -2.6 (4.1) 11.8 (2.4) 1.6 (3.3) TAS 7.6 (4.7) 7.3 (4.7) -6.4 (0.7) 0.0 (0.0) -3.8 (-0.1) -10.3 (-0.3) 0.3 (4.6) 0.0 (0.0) 2.7 (2.8) NT -1.2 (3.5) -0.4 (3.6) 0.0 (1.5) 0.0 (0.0) 2.6 (0.6) 6.8 (3.4) 1.8 (8.2) 0.0 (0.0) 0.0 (3.3) AUS 2.7 (4.3) 3.1 (4.2) 3.1 (3.1) 0.0 (0.1) 2.5 (2.7) 4.2 (4.7) 3.0 (5.5) 2.7 (3.9) 2.7 (3.6) Source: ABS/DOE/RBA/Savills Research; Annual growth rate as at Mar-18, 10yr Averages shown in brackets.

Source: ABS / Savills Research

Briefing National Retail - May 2018

8 Savills Research | Briefing National Retail Regional Centres Source: Savills Research (Year to Mar-18) Queensland was the most active in the last 12 months, with at least four Regional centres completing extension projects, the largest being Grand Central (45,000sq m) and Westfield Chermside (33,000sq m). Western Australia and Queensland are the most active in regards to extension and/or redevelopment projects in the short-term. Western Australia also has the largest redevelopment pipeline of existing Regional centres, with projects either planned or underway by Scentre Group, AMP, Vicinity Centres / Perron Group and Challenger Life.

More than 180,000 square metres is being redeveloped at this level in Western Australia and circa 400,000 square metres of new Regional floor space is expected through extension projects, including Westfield Carousel, Karrinyup SC, Garden City, Whitfords City, Ellenbrook and Morley Galleria. In Queensland, circa 225,000 square metres of new Regional floor space is in the pipeline with QIC / Scentre Group, Vicinity Centres and Mirvac driving much of this activity.

National Supply – Regional Centres Transactions in the Regional segment provided a significant boost to overall numbers, contributing $2.5 billion to the year to March 2018 tally of $9.1 billion, which was almost 30% of total value of transactions recorded nationally ($5m+). The last time Regional annual transaction volumes got close to this level was back in 2008 (year to March $2.4bn), with annual volumes typically trending closer to $1.0 billion since 2008. There were several landmark deals that buoyed overall performance, as institutions traded asset stakes, including AMP, Mirvac, Vicinity Centres, GPT and ISPT.

While there are yet to be any Regional transactions recorded in the first quarter of 2018, QIC Global Real Estate has reportedly acquired a stake in Werribee Plaza and Pacific Epping Centre in Victoria from Pacific Group, with settlement possible in Q2. The current tally of $2.5 billion is a result of five significant transactions mostly through November/December - the two largest being the 50% stake sale of Indooroopilly SC for $795 million between Commonwealth Superannuation Corporation and AMP Capital, and the 25% stake sale of Highpoint SC for $660 million between Highpoint Property Group (Besen Group) and GPT’s Wholesale SC Fund.

Following two years of above-average cross-border investment, including Blackstone’s acquisition of the $613.3 million portfolio from Vicinity Centres in 2016, there has only been one Regional centre sale to a foreign investor in this 12 month reporting period. Through the $1.1 billion asset swap deal with Vicinity Centres, an affiliate of GIC, a Singaporean sovereign wealth fund, acquired a share in Chatswood Chase for $562.3 million.

0m $500m $1,000m $1,500m $2,000m $2,500m $3,000m $50m - $250m $250m - $500m >$500m 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2018 2019 2020 2021 NSW VIC QLD WA SA National Retail Supply – Regional Centres (sq m) National Sales - Regional Centres “Transactions soar to $2.51 billion, the highest level of investment in the Regional sector since 2007.” National Sales Activity ($5m+) -Regional Centres Source: Savills Research (Year to Mar-18) $0m $500m $1,000m $1,500m $2,000m $2,500m $50m - $250m $250m - $500m >$500m

Briefing National Retail - May 2018

May 2018 savills.com.au/research 9 Source: Cordell/Savills Research (Year to Mar-18) Source: Cordell/Savills Research (Year to Mar-18) In the 12 months to March 2018, $767.2 million of SubRegional transactions ($5m+) were recorded nationally, almost half the volumes at the same time last year ($1.49bn).

The shift comes after four years of high investment volumes in the segment, including Vicinity Centres circa $1.0 billion portfolio sale in 2016 to Mirvac and Blackstone, and the Insurance Commission of WA’s sale of its direct property retail assets to Vicinity Centres for $303 million in 2015. Both funds and trusts have been trading assets above the 10-year average. In the year to March 2018, institutions accounted for 91% of Sub-Regional buying activity, their highest proportion of total acquisitions of the markets surveyed since 2014. Institutional vendors have generally accounted about 60% of assets sold annually throughout the last 10-years, however as sellers, this dropped in the last 12 months, following an active period through the year to March 2017, potentially capital raising to fund the portfolio reweighting strategies from non-core to core assets.

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 to 33,910 square metres, relative to the level seen in 2017 (75,000sq m), is partly due to the redevelopment of some Sub-Regional centres to Regional scale. For example Bunbury Forum SC in Western Australia and Stockland Greenhills in New South Wales. The future pipeline looks set to peak in 2020, with circa 154,000 square metres at committed or at planning stage. Queensland currently leads future development in this subsector through new and extension projects. National Supply – Sub-Regional Centres National Supply – Sub-Regional Centres $0m $200m $400m $600m $800m $1,000m $1,200m $1,400m $1,600m $1,800m $2,000m NSW VIC QLD WA SA TAS 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 2018 2019 2020 2021 NSW VIC QLD WA SA $0m $200m $400m $600m $800m $1,000m $1,200m $1,400m $1,600m $1,800m $2,000m NSW VIC QLD WA SA TAS 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 2018 2019 2020 2021 NSW VIC QLD WA SA National Sales Activity ($5m+) – Sub-Regional Centres National Retail Supply – Sub-Regional Centres (sq m) Sub-Regional Centres

Briefing National Retail - May 2018

10 Savills Research | Briefing National Retail Neighbourhood Centres $0m $500m $1,000m $1,500m $2,000m $2,500m NSW VIC QLD WA SA 50,000 100,000 150,000 200,000 250,000 2018 2019 2020 2021 NSW VIC QLD WA SA $0m $500m $1,000m $1,500m $2,000m $2,500m NSW VIC QLD WA SA 50,000 100,000 150,000 200,000 250,000 2018 2019 2020 2021 NSW VIC QLD WA SA Source: Savills Research (Year to Mar-18) Source: Cordell/Savills Research (Year to Mar-18) *'Dark’ stores are classified as industrial supply and are not captured in the retail supply figures above On the supply-side there is a low volume of new Neighbourhood centre development activity in the pipeline relative to Regional centres.

New supply is being led by projects in New South Wales predominantly, followed by Queensland and Victoria.

More than 600,000 square metres of new supply, including extensions, is expected over the next five years. The majority of these developments are occurring in areas where population densities are increasing as a result of new dwelling supply. The refurbishment of existing centres remains a priority to owners, particularly to Woolworths whose development strategy focusses on refurbishments and developing socalled ‘dark’ stores* to cater exclusively to online fulfilment to assist in to positioning themselves competitively against the likes of Amazon. Despite this, new supermarkets are the most dominant form of supply (77%), far out-weighing both refurbishments (11.4%) and additions (11.8%).

National Sales – Neighbourhood Centres National Supply – Neighbourhood Centres National Sales Activity ($5m+) – Neighbourhood Centres National Retail Supply – Neighbourhood Centres (sq m) Activity in the year to March 2018 is up on the previous year (+34%), driven predominantly by a rise in investment volumes in Queensland. Over $1.96 billion in transactions ($5m+) were recorded nationally, representing 22% of total national retail investment volumes over the same period. While some institutional owners sold down assets, around a third of transactions were on the back of private investors selling.

Centres with long leases anchored by Coles or Woolworths were highly coveted, as evidenced by the sale of Morningside Plaza in East Brisbane on a passing yield of 5.10% and Woodcroft Village (NSW) in September 2017 for 5.79% (equated).

In August 2017, Stockland announced their plans to divest $300 million of retail town centres and recently sold its Highland SC in Victoria for circa $43 million. Similarly, Charter Hall announced their strategy to divest non-core Neighbourhood centres, exchanging contracts for centres across Tasmania, South Australia and Queensland in December. Vicinity Centres and Sentinel have also followed a similar strategy to divest non-core assets and redirect or reinvest funds.

May 2018 savills.com.au/research 11 Large Format Retail Savills Research | Briefing Note - National Retail Q1/2018 savills.com.au/research 9 Large Format Centres National Sales Activity ($5m+) – Large Format A significant upturn in transactional activity during the last 12 months has elevated the sub-sector into new territory.

Representing 16.5% of national retail investment volumes, $1.504 billion transactions ($5m+) were recorded in the year to March 2018, the highest level in the last 10-years and well above the long term average of $768 million. The rise in 2017 volumes is underpinned by seven $50 million+ transactions, the largest being the acquisition of two centres by listed Aventus Property Group for $436 million in Q2-2017. Aventus announced their expansion strategy back in 2016 and now has 20 centres in their national portfolio. 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 almost 70% of the acquisitions in the year to March 2018, more than treble the activity seen in 2016 (19%).

Altis Property is selling a portfolio of four Large Format centres across Queensland and New South Wales. Expected to sell for circa $500 million, the portfolio is likely to draw high interest. National Sales Activity ($5m+) – Large Format Source: Savills Research (Year to Mar-18) National Retail Supply – Large Format (sq m) Investor confidence in the sub-sector is contributing to an upswing in supply over the next five years. More than one million square metres of Large Format supply, including refurbishments, is underway or in the pipeline over this period, with approximately half of this is in New South Wales.

Large Format centres now incorporate a broad tenant mix base – they are no longer exclusively selling furniture or white goods, with fitness centres, leisure and even big box pharmacies now becoming more common. The most recent example of the diversification is the conversion of former Masters hardware stores into multi-tenanted Large Format centres by Home Consortium, which is now well underway. There have been some reports of a moderating in sales growth for some Large Format centres, prompting a change in strategy to reduce exposure to household goods tenants. Centre management have instead opted to re-weight the tenancy mix in favour of operators in the Cafe and Restaurant, Health and Wellbeing, and Childcare sectors for these centres.

National Retail Supply – Large Format (sq m) Source: Cordell/Savills Research (Year to Mar-18) $0m $200m $400m $600m $800m $1,000m $1,200m $1,400m $1,600m NSW VIC QLD WA SA ACT 50,000 100,000 150,000 200,000 250,000 300,000 350,000 2018 2019 2020 2021 NSW VIC QLD WA SA Savills Research | Briefing Note - National Retail Q1/2018 Large Format Centres National Sales Activity ($5m+) – Large Format A significant upturn in transactional activity during the last 12 months has elevated the sub-sector into new territory. Representing 16.5% of national retail investment volumes, $1.504 billion transactions ($5m+) were recorded in the year to March 2018, the highest level in the last 10-years and well above the long term average of $768 million.

The rise in 2017 volumes is underpinned by seven $50 million+ transactions, the largest being the acquisition of two centres by listed Aventus Property Group for $436 million in Q2-2017. Aventus announced their expansion strategy back in 2016 and now has 20 centres in their national portfolio. 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 almost 70% of the acquisitions in the year to March 2018, more than treble the activity seen in 2016 (19%).

Altis Property is selling a portfolio of four Large Format centres across Queensland and New South Wales. Expected to sell for circa $500 million, the portfolio is likely to draw high interest. National Sales Activity ($5m+) – Large Format Source: Savills Research (Year to Mar-18) National Retail Supply – Large Format (sq m) Investor confidence in the sub-sector is contributing to an upswing in supply over the next five years. More than one million square metres of Large Format supply, including refurbishments, is underway or in the pipeline over this period, with approximately half of this is in New South Wales.

Large Format centres now incorporate a broad tenant mix base – they are no longer exclusively selling furniture or white goods, with fitness centres, leisure and even big box pharmacies now becoming more common. The most recent example of the diversification is the conversion of former Masters hardware stores into multi-tenanted Large Format centres by Home Consortium, which is now well underway. There have been some reports of a moderating in sales growth for some Large Format centres, prompting a change in strategy to reduce exposure to household goods tenants. Centre management have instead opted to re-weight the tenancy mix in favour of operators in the Cafe and Restaurant, Health and Wellbeing, and Childcare sectors for these centres.

National Retail Supply – Large Format (sq m) Source: Cordell/Savills Research (Year to Mar-18) $0m $200m $400m $600m $800m $1,000m $1,200m $1,400m $1,600m NSW VIC QLD WA SA ACT 50,000 100,000 150,000 200,000 250,000 300,000 350,000 2018 2019 2020 2021 NSW VIC QLD WA SA Source: Savills Research (Year to Mar-18) A significant upturn in transactional activity during the last 12 months has elevated the sub-sector into new territory. Representing 16.5% of national retail investment volumes, $1.504 billion transactions ($5m+) were recorded in the year to March 2018, the highest level in the last 10-years and well above the long term average of $768 million.

The rise in 2017 volumes is underpinned by seven $50 million+ transactions, the largest being the acquisition of two centres by listed Aventus Property Group for $436 million in Q2-2017. Aventus announced their expansion strategy back in 2016 and now has 20 centres in their national portfolio. 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 almost 70% of the acquisitions in the year to March 2018, more than treble the activity seen in 2016 (19%).

Altis Property is selling a portfolio of four Large Format centres across Queensland and New South Wales. Expected to sell for circa $500 million, the portfolio is likely to draw high interest. National Sales – Large Format Retail Source: Cordell/Savills Research (Year to Mar-18) Investor confidence in the sub-sector is contributing to an upswing in supply over the next five years. More than one million square metres of Large Format supply, including refurbishments, is underway or in the pipeline over this period, with approximately half of this is in New South Wales. Large Format centres now incorporate a broad tenant mix base – they are no longer exclusively selling furniture or white goods, with fitness centres, leisure and even big box pharmacies now becoming more common.

The most recent example of the diversification is the conversion of former Masters hardware stores into multi-tenanted Large Format centres by Home Consortium, which is now well underway. There have been some reports of a moderating in sales growth for some Large Format centres, prompting a change in strategy to reduce exposure to household goods tenants. Centre management have instead opted to re-weight the tenancy mix in favour of operators in the Cafe and Restaurant, Health and Wellbeing, and Childcare sectors for these centres.

National Supply – Large Format Retail National Sales Activity ($5m+) – Large Format Retail National Retail Supply – Large Format Retail (sq m) “Decade high sales volumes are largely due to an influx of institutional capital, which is almost treble the contribution from the previous year.” Peter Sutherland Senior Analyst | Research

  • 12 Savills Research | Briefing National Retail NSW Retail Economic Drivers - % Growth 12 months to AUS NSW GDP/SFD Growth Dec-17 2.3 (2.6) 2.9 (2.7) Population Growth Sep-17 1.6 (1.7) 1.6 (1.4) Employment Growth Mar-18 3.1 (1.6) 3.6 (1.5) Unemployment Rate Mar-18 5.5 (5.5) 4.8 (5.3) F/T Earnings Growth Nov-17 2.2 (3.2) 3.4 (3.3) House Price Growth Dec-17 1.9 (4.9) -2.0 (6.1) Apartment Price Growth Dec-17 2.6 (4.2) 0.0 (5.8) Retail Trade Growth Mar-18 2.7 (3.6) 2.6 (4.1)
  • Food Mar-18 3.1 (4.2) 3.8 (3.9)
  • Dept Stores Mar-18 0.0 (0.1) -1.4 (0.0)
  • H/H Goods Mar-18 2.5 (2.7) 2.3 (3.8)
  • Clothing Mar-18 3.1 (3.1) 1.3 (4.3)
  • Cafes Mar-18 3.0 (5.5) 3.9 (6.9) Source: ABS/Savills Research. Note 10yr Average shown in brackets NSW Overview – NSW “Investment flows have been at historically high levels recently, fuelled by strong local economic fundamentals and unrelenting investor appetite, a trend likely to roll into Q2.” Steven Lerche National Director | Retail Investments/Services | New South Wales New South Wales continues to be one of the top performing states nationally. This is true both from a capital markets perspective and from a supply pipeline perspective, indicating a high level of confidence from both investors and owners alike.

Economic conditions are for the most part supportive of the retail market. State Final Demand growth of 2.9% in New South Wales is above the long-term trend and the national average, and the unemployment rate is the second lowest at 4.8%. Importantly, the tight labour market conditions are now starting to translate into full-time earnings growth, which is a nation-leading 3.4%. However, these positive indicators are yet to affect retail trade growth (2.6%), which is still below the long-term average of 4.1%. This result is being driven by weakness in Department Stores (-1.4%) and Clothing (1.3%), which is consistent with recent Myer store closures and declining comparable sales growth reported by both Myer and David Jones.

After a period of strong growth, dwelling prices have deteriorated in New South Wales, particularly in the case of detached housing (-2.0%). This may lead to a tempering in 'Household Goods' growth in the medium term, given the delayed correlation with dwelling prices.

Supermarket' spending has proven resilient at 3.4%, albeit slightly down on the long term average (4.5%). This is due to price deflation in the grocery sector caused by increasing competition from new entrants, particularly Aldi, which is expanding the fastest. Investors are unperturbed however, and are paying equated market yields as tight as 5.4% for Neighbourhood centres with long term covenants to ASX listed operators.

May 2018 savills.com.au/research 13 Savills Research | Briefing Note - National Retail Q1/2018 savills.com.au/research 11 Sales Activity – NSW Retail investment transactions ($5m+) reached $4.32 billion in the year to March 2018, almost double the previous corresponding period (+93%) and the highest level of the past decade.

The growth in activity underpinned the record numbers seen nationally, accounting for almost half of total $9.1 billion captured during the year to March 2018. Activity was skewed towards the December quarter and was characterised by institutions trading whole or part shares in mature assets, mostly in the $100 million+ category. The largest deal was the $1.1 billion trade in November 2017 between Vicinity and GIC where Chatswood Chase (49%) was swapped for The Galeries (50%), The Strand Arcade (50%) and The Queen Victoria Building (50%).

Deal flow in the CBD continued in March 2018 with the $95.5 million sale of Soul Pattinsons Chemist in Pitt Street Mall. The heritage significant shop features a highly prized super prime frontage to Pitt Street mall of 12.8 metres. Sales Activity ($5m+) by Retail Type Source: Savills Research (Year to Mar-18) Supply Pipeline by Retail Type (sq m) 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 centre extension projects are due to complete during 2018, including Stockland Greenhills (27,700sq m) and Westfield Kotara (6,295sq m). However this is expected to pale relative to the Large Format sector with 108,000 square metres due to complete in the same timeframe. This total comprises eight projects, six of which are Bunnings Warehouses. Several Neighbourhood centres are also under construction, completing in 2018. These are typically undertaken by smaller scale developers in green or brownfield locations, for example Marina Square (7,000 sq m) in Wentworth Point. Supply Pipeline by Retail Type (sq m) Source: Cordell/Savills Research (Year to Mar-18) $0m $500m $1,000m $1,500m $2,000m $2,500m $3,000m $3,500m $4,000m $4,500m Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Shops Other 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format Shops Freestanding Savills Research | Briefing Note - National Retail Q1/2018 Sales Activity – NSW Retail investment transactions ($5m+) reached $4.32 billion in the year to March 2018, almost double the previous corresponding period (+93%) and the highest level of the past decade.

The growth in activity underpinned the record numbers seen nationally, accounting for almost half of total $9.1 billion captured during the year to March 2018. Activity was skewed towards the December quarter and was characterised by institutions trading whole or part shares in mature assets, mostly in the $100 million+ category. The largest deal was the $1.1 billion trade in November 2017 between Vicinity and GIC where Chatswood Chase (49%) was swapped for The Galeries (50%), The Strand Arcade (50%) and The Queen Victoria Building (50%).

Deal flow in the CBD continued in March 2018 with the $95.5 million sale of Soul Pattinsons Chemist in Pitt Street Mall. The heritage significant shop features a highly prized super prime frontage to Pitt Street mall of 12.8 metres. Sales Activity ($5m+) by Retail Type Source: Savills Research (Year to Mar-18) Supply Pipeline by Retail Type (sq m) 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 centre extension projects are due to complete during 2018, including Stockland Greenhills (27,700sq m) and Westfield Kotara (6,295sq m). However this is expected to pale relative to the Large Format sector with 108,000 square metres due to complete in the same timeframe. This total comprises eight projects, six of which are Bunnings Warehouses. Several Neighbourhood centres are also under construction, completing in 2018. These are typically undertaken by smaller scale developers in green or brownfield locations, for example Marina Square (7,000 sq m) in Wentworth Point. Supply Pipeline by Retail Type (sq m) Source: Cordell/Savills Research (Year to Mar-18) $0m $500m $1,000m $1,500m $2,000m $2,500m $3,000m $3,500m $4,000m $4,500m Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Shops Other 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format Shops Freestanding Source: Savills Research (Year to Mar-18) Source: Cordell/Savills Research (Year to Mar-18) Retail investment transactions ($5m+) reached $4.32 billion in the year to March 2018, almost double the previous corresponding period (+93%) and the highest level of the past decade.

The growth in activity underpinned the record numbers seen nationally, accounting for almost half of total $9.1 billion captured during the year to March 2018. Activity was skewed towards the December quarter and was characterised by institutions trading whole or part shares in mature assets, mostly in the $100 million+ category. The largest deal was the $1.1 billion trade in November 2017 between Vicinity and GIC where Chatswood Chase (49%) was swapped for The Galeries (50%), The Strand Arcade (50%) and The Queen Victoria Building (50%). Deal flow in the CBD continued in March 2018 with the $95.5 million sale of Soul Pattinsons Chemist in Pitt Street Mall.

The heritage significant shop features a highly prized super prime frontage to Pitt Street mall of 12.8 metres. 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 centre extension projects are due to complete during 2018, including Stockland Greenhills (27,700sq m) and Westfield Kotara (6,295sq m). However this is expected to pale relative to the Large Format sector with 108,000 square metres due to complete in the same timeframe. This total comprises eight projects, six of which are Bunnings Warehouses. Several Neighbourhood centres are also under construction, completing in 2018. These are typically undertaken by smaller scale developers in green or brownfield locations, for example Marina Square (7,000 sq m) in Wentworth Point. Sales Activity – NSW Supply Pipeline – NSW Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) NSW Supply Pipeline by Development Stage Source: Savills Research (Year to Mar-18) Under Construction DA Mooted 0% 20% 40% 60% 80% 100%