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 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 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 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 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 Sub- Regional 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 sub- sector 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 so- called ‘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%

14 Savills Research | Briefing National Retail VIC Retail Economic Drivers - % Growth 12 months to AUS VIC GDP/SFD Growth Dec-17 2.3 (2.6) 4.7 (3.0) Population Growth Sep-17 1.6 (1.7) 2.4 (2.1) Employment Growth Mar-18 3.1 (1.6) 2.5 (2.1) Unemployment Rate Mar-18 5.5 (5.5) 5.8 (5.7) F/T Earnings Growth Nov-17 2.2 (3.2) 3.1 (1.7) House Price Growth Dec-17 1.9 (4.9) 7.8 (6.2) Apartment Price Growth Dec-17 2.6 (4.2) 6.8 (4.2) Retail Trade Growth Mar-18 2.7 (3.6) 5.0 (4.0) • Food Mar-18 3.1 (4.2) 3.5 (4.5) • Dept Stores Mar-18 0.0 (0.1) 0.7 (0.7) • H/H Goods Mar-18 2.5 (2.7) 4.5 (3.5) • Clothing Mar-18 3.1 (3.1) 6.8 (3.4) • Cafes Mar-18 3.0 (5.5) 5.8 (5.3) Source: ABS/Savills Research.

Note 10yr Average shown in brackets VIC Overview – VIC “Private investors have been flocking to buy Neighbourhood and Large Format centres as defensive assets. The purchaser class now accounts for nearly a third of retail transactions in Victoria by value.” Monica Mondkar Associate Director | Research & Consulting | Victoria Victoria is amongst the top two states leading the Australian economy, driven mainly by its population and jobs growth. It continues to remain the top performing Australian state for population growth driven by both international and interstate migration.

Similar to its economic growth rate, which is the highest nationally, Victorian retail trade growth continues to outperform all other states and territories. Victoria’s retail trade statistics relative to the national data demonstrate Australia’s two-speed economic conditions. National averages for discretionary spending in the sub-sectors of ‘household goods’ and ‘café & restaurants’ remained below their 10- year averages. Higher household debt level and muted wage growth impacted consumers’ outlay on discretionary items. In comparison, Victoria’s discretionary spending (household goods, clothing & cafes) was above their long-term growth rates and also above the corresponding national averages, buoyed by a sharp rise in its key economic indicators (population and employment).

Rising population in the state has increased demand for construction activity and the public services sector. Strong levels of spending on housing, infrastructure, and growing public services sector, is all translating into higher employment statistics in the state. Forward indicators indicate a continued rise in the state’s full-time employment, a key metric to sustained consumer confidence and demand for retail trade. Retail trade performance remains strong in the state, lifting confidence and investment from domestic investors (funds and trusts), which is collectively the largest buyer category of the Victorian shopping centres over the year to March 2018.

May 2018 savills.com.au/research 15 Savills Research | Briefing Note - National Retail Q1/2018 Sales Activity - VIC Retail sales transactions ($5m+) declined 27% in the 12 months to March 2018 to $1.34 billion and were 4% below the 10-year average. Annual results were the lowest of the past five years, tempered due to a lower volume of stock offered for sale. In the past year, 39 assets were sold compared to 45 retail properties in the preceding 12 month period. However, transactions may be limited by the availability of assets to purchase in near term.

Regional and Sub-Regional centres accounted for over half of the transaction volume ($703 million) across just two sales.

These remain dominant asset classes, followed by Neighbourhood centre sales ($271 million). A recent Neighbourhood centre sale included Torquay Village for $35 million, while Arena shopping centre’s sale for $48.1 million was the most significant transaction of the year from the category. Trusts (45%) dominated the buyer type, followed by private investors at 29% of the total sales. Investment from foreign investors (5%) was at the lowest level since 2011. Sales Activity ($5m+) by Retail Type Source: Savills Research (Year to Mar-18) Supply Pipeline – VIC In response to changing consumer demand and accessibility of online platforms, landlords are repositioning their centres through capital improvements and strategies to revolutionise the tenancy mix.

Another paradigm shift to Australian shopping centres is mixed-use development around the centres, a common feature in Asian markets. Some institutional owners have commenced/planned mixed-use projects around their existing shopping centres to unlock unrealised value and improve foot traffic at the site. However, such improvements focus primarily on high population forecast locations. Supply in 2018 is driven by construction activity in Large Format, Neighbourhood and Sub-Regional centre categories. The most prominent Sub-Regional centre developments to be completed over the year include expansion of the Westfield Plenty Valley (10,000 sq m) and Stockland Wendouree (6,700 sq m).

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 Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Shops Other 10,000 20,000 30,000 40,000 50,000 60,000 70,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood Large Format Mixed Use Savills Research | Briefing Note - National Retail Q1/2018 Sales Activity - VIC Retail sales transactions ($5m+) declined 27% in the 12 months to March 2018 to $1.34 billion and were 4% below the 10-year average. Annual results were the lowest of the past five years, tempered due to a lower volume of stock offered for sale.

In the past year, 39 assets were sold compared to 45 retail properties in the preceding 12 month period. However, transactions may be limited by the availability of assets to purchase in near term.

Regional and Sub-Regional centres accounted for over half of the transaction volume ($703 million) across just two sales. These remain dominant asset classes, followed by Neighbourhood centre sales ($271 million). A recent Neighbourhood centre sale included Torquay Village for $35 million, while Arena shopping centre’s sale for $48.1 million was the most significant transaction of the year from the category. Trusts (45%) dominated the buyer type, followed by private investors at 29% of the total sales. Investment from foreign investors (5%) was at the lowest level since 2011. Sales Activity ($5m+) by Retail Type Source: Savills Research (Year to Mar-18) Supply Pipeline – VIC In response to changing consumer demand and accessibility of online platforms, landlords are repositioning their centres through capital improvements and strategies to revolutionise the tenancy mix.

Another paradigm shift to Australian shopping centres is mixed-use development around the centres, a common feature in Asian markets. Some institutional owners have commenced/planned mixed-use projects around their existing shopping centres to unlock unrealised value and improve foot traffic at the site. However, such improvements focus primarily on high population forecast locations. Supply in 2018 is driven by construction activity in Large Format, Neighbourhood and Sub-Regional centre categories. The most prominent Sub-Regional centre developments to be completed over the year include expansion of the Westfield Plenty Valley (10,000 sq m) and Stockland Wendouree (6,700 sq m).

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 Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Shops Other 10,000 20,000 30,000 40,000 50,000 60,000 70,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood Large Format Mixed Use Source: Savills Research (Year to Mar-18) Source: Cordell/Savills Research (Year to Mar-18) Retail sales transactions ($5m+) declined 27% in the 12 months to March 2018 to $1.34 billion and were 4% below the 10-year average. Annual results were the lowest of the past five years, tempered due to a lower volume of stock offered for sale.

In the past year, 39 assets were sold compared to 45 retail properties in the preceding 12 month period. However, transactions may be limited by the availability of assets to purchase in near term.

Regional and Sub-Regional centres accounted for over half of the transaction volume ($703 million) across just two sales. These remain dominant asset classes, followed by Neighbourhood centre sales ($271 million). A recent Neighbourhood centre sale included Torquay Village for $35 million, while Arena shopping centre’s sale for $48.1 million was the most significant transaction of the year from the category. Trusts (45%) dominated the buyer type, followed by private investors at 29% of the total sales. Investment from foreign investors (5%) was at the lowest level since 2011. In response to changing consumer demand and accessibility of online platforms, landlords are repositioning their centres through capital improvements and strategies to revolutionise the tenancy mix.

Another paradigm shift to Australian shopping centres is mixed-use development around the centres, a common feature in Asian markets. Some institutional owners have commenced/planned mixed-use projects around their existing shopping centres to unlock unrealised value and improve foot traffic at the site. However, such improvements focus primarily on high population forecast locations.

Supply in 2018 is driven by construction activity in Large Format, Neighbourhood and Sub-Regional centre categories. The most prominent Sub-Regional centre developments to be completed over the year include expansion of the Westfield Plenty Valley (10,000 sq m) and Stockland Wendouree (6,700 sq m). Sales Activity – VIC Supply Pipeline - VIC Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) Source: Savills Research (Year to Mar-18) VIC Supply Pipeline by Development Stage Under Construction DA Mooted 0% 20% 40% 60% 80% 100%

16 Savills Research | Briefing National Retail QLD Overview – QLD “We expect Queensland to continue to draw a significant share of capital inflows nationally as population, employment and business investment strengthens further.” Peter Tyson National Director | Retail Investments | Queensland Positive signs are emerging in Queensland following improvements in commodity prices and record export growth.

Job advertisements have also increased and the year-on-year growth rate is now the second highest nationally (10.9%) as at March 2018, indicative of further increases in employment levels.

Significant infrastructure works are planned on the Gold Coast, Sunshine Coast and in Brisbane CBD. Early works have commenced on the $5.4 billion Cross River Rail project, which includes a 6.9 kilometre twin tunnel running beneath Brisbane CBD. Stage 3 of the G Link Light Rail on the Gold Coast ($615 million) is proposed, connecting Burleigh Heads to Broadbeach, and a further $2.2 billion in tourism related development is mooted on the Gold Coast. An upswing in job ads bodes well for retail conditions, as does a healthy population growth rate, which is the third highest nationally. The result helps explain the slew of new infrastructure planned to accommodate the new arrivals, with another example being the upgrade to Maroochydore Airport ($225 million), which is expected to boost passenger arrivals to around two million per annum on the Sunshine Coast.

The healthy population growth rate is partly due to interstate migration, which is now the strongest since 2007. Housing affordability appears to be driving this trend, evidenced by substantially cheaper Greater Capital City median house prices in Queensland ($531,000) relative to New South Wales ($980,000) and Victoria ($750,000). This has likely fuelled strong growth in Household goods retail turnover (+5.5%), which is well above the long term trend. The slower growth in 'Food' retailing is due to price deflation caused by stronger competition in the grocery sector, particularly from newer entrants such as Aldi.

This is not expected to impact Neighbourhood centre transactions. QLD Retail Economic Drivers - % Growth 12 months to AUS QLD GDP/SFD Growth Dec-17 2.3 (2.6) 3.0 (1.9) Population Growth Sep-17 1.6 (1.7) 1.7 (1.8) Employment Growth Mar-18 3.1 (1.6) 4.3 (1.4) Unemployment Rate Mar-18 5.5 (5.5) 6.0 (5.7) F/T Earnings Growth Nov-17 2.2 (3.2) 3.1 (3.7) House Price Growth Dec-17 1.9 (4.9) 3.1 (2.5) Apartment Price Growth Dec-17 2.6 (4.2) 0.3 (1.1) Retail Trade Growth Mar-18 2.7 (3.6) 1.9 (3.1) • Food Mar-18 3.1 (4.2) 2.7 (4.4) • Dept Stores Mar-18 0.0 (0.1) 3.1 (0.3) • H/H Goods Mar-18 2.5 (2.7) 5.5 (1.9) • Clothing Mar-18 3.1 (3.1) 1.9 (2.8) • Cafes Mar-18 3.0 (5.5) -2.2 (3.4) Source: ABS/Savills Research.

Note 10yr Average shown in brackets

May 2018 savills.com.au/research 17 Savills Research | Briefing Note - National Retail Q1/2018 QLD Sales Activity – QLD Queensland retail activity remains at decade high levels with $2.4 billion in transactions ($5m+) recorded in the year to March 2018. This follows three years of elevated market activity where transaction volumes exceeded the 10-year average of $1.4 billion. Regional and Neighbourhood centres made up the majority of the annual total by value (40% and 35% share respectively). Neighbourhood investment volumes were up 84% on the previous year with 28 sales recorded. The deals were characterised by private investors selling to funds, trusts and foreign investors, with initial yields ranging from 5.10% to 7.69%.

For example, Morningside Plaza sold to a foreign investor for $23.8 million in March 2018 on a tight initial yield of 5.10% in an off-market transaction.

At the other end of the price spectrum, the sale of Indooroopilly Shopping Centre (50%) in November 2017 for $795 million to AMP Capital was the largest transaction for the year to March 2018, boosting Regional sale volumes to a decade high. Sales Activity ($5m+) by Retail Type Source: Savills Research (Year to Mar-18) Supply Pipeline – QLD The Queensland supply pipeline is expected build steadily over the next three years. New Neighbourhood supply will become more prevalent in the next two years, with over 20 individual centres potentially reaching completion in 2019 alone. New Sub-Regional supply is also gradually building.

One new project expected to complete this year, four in 2019 and another seven in 2020.

New Large Format supply will continue to feature in the supply pipeline. The majority can be attributed to Bunnings (circa 120,000 sq m) however, Home Consortium is starting to accelerate conversions of former Masters Stores, with three such projects due to complete this year. Recent major completions include QIC’s Grand Central, Toowoomba (45,000 sq m) which opened in March 2018. The major extension increased the retail area to 90,000 square metres and included the addition of two discount department stores, a Woolworths supermarket and over 100 new specialty stores.

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 Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Other Shops 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format Savills Research | Briefing Note - National Retail Q1/2018 QLD Sales Activity – QLD Queensland retail activity remains at decade high levels with $2.4 billion in transactions ($5m+) recorded in the year to March 2018.

This follows three years of elevated market activity where transaction volumes exceeded the 10-year average of $1.4 billion. Regional and Neighbourhood centres made up the majority of the annual total by value (40% and 35% share respectively).

Neighbourhood investment volumes were up 84% on the previous year with 28 sales recorded. The deals were characterised by private investors selling to funds, trusts and foreign investors, with initial yields ranging from 5.10% to 7.69%. For example, Morningside Plaza sold to a foreign investor for $23.8 million in March 2018 on a tight initial yield of 5.10% in an off-market transaction. At the other end of the price spectrum, the sale of Indooroopilly Shopping Centre (50%) in November 2017 for $795 million to AMP Capital was the largest transaction for the year to March 2018, boosting Regional sale volumes to a decade high.

Sales Activity ($5m+) by Retail Type Source: Savills Research (Year to Mar-18) Supply Pipeline – QLD The Queensland supply pipeline is expected build steadily over the next three years. New Neighbourhood supply will become more prevalent in the next two years, with over 20 individual centres potentially reaching completion in 2019 alone. New Sub-Regional supply is also gradually building. One new project expected to complete this year, four in 2019 and another seven in 2020.

New Large Format supply will continue to feature in the supply pipeline. The majority can be attributed to Bunnings (circa 120,000 sq m) however, Home Consortium is starting to accelerate conversions of former Masters Stores, with three such projects due to complete this year. Recent major completions include QIC’s Grand Central, Toowoomba (45,000 sq m) which opened in March 2018. The major extension increased the retail area to 90,000 square metres and included the addition of two discount department stores, a Woolworths supermarket and over 100 new specialty stores.

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 Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Other Shops 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format Source: Savills Research (Year to Mar-18) Source: Cordell/Savills Research (Year to Mar-18) Queensland retail activity remains at decade high levels with $2.4 billion in transactions ($5m+) recorded in the year to March 2018.

This follows three years of elevated market activity where transaction volumes exceeded the 10-year average of $1.4 billion. Regional and Neighbourhood centres made up the majority of the annual total by value (40% and 35% share respectively).

Neighbourhood investment volumes were up 84% on the previous year with 28 sales recorded. The deals were characterised by private investors selling to funds, trusts and foreign investors, with initial yields ranging from 5.10% to 7.69%. For example, Morningside Plaza sold to a foreign investor for $23.8 million in March 2018 on a tight initial yield of 5.10% in an off-market transaction. At the other end of the price spectrum, the sale of Indooroopilly Shopping Centre (50%) in November 2017 for $795 million to AMP Capital was the largest transaction for the year to March 2018, boosting Regional sale volumes to a decade high.

The Queensland supply pipeline is expected build steadily over the next three years. New Neighbourhood supply will become more prevalent in the next two years, with over 20 individual centres potentially reaching completion in 2019 alone. New Sub-Regional supply is also gradually building. One new project expected to complete this year, four in 2019 and another seven in 2020.

New Large Format supply will continue to feature in the supply pipeline. The majority can be attributed to Bunnings (circa 120,000 sq m) however, Home Consortium is starting to accelerate conversions of former Masters Stores, with three such projects due to complete this year. Recent major completions include QIC’s Grand Central, Toowoomba (45,000 sq m) which opened in March 2018. The major extension increased the retail area to 90,000 square metres and included the addition of two discount department stores, a Woolworths supermarket and over 100 new specialty stores.

Sales Activity - QLD Supply Pipeline – QLD Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) Source: Savills Research (Year to Mar-18) Under Construction DA Mooted 0% 20% 40% 60% 80% 100% QLD Supply Pipeline by Development Stage

18 Savills Research | Briefing National Retail “With future industries providing a boost to outlooks, employment is growing and confidence is up, supporting an upswing in retail spending, while buoying the state’s profile amongst international retailers.” Rino Carpinelli Managing Director | South Australia Overview – SA Following the state election in March 2018, a new majority Liberal government has been formed for the first time in 16 years. The new Government is expected to authorise the preparation of legislation to extend retail trading hours. Currently only shops situated in the Adelaide CBD and tourist precinct are exempt from public holiday trading restrictions.

The proposed change will greatly benefit shops in the Greater Adelaide shopping districts, potentially allowing them to trade on public holidays in any year. There is no doubt that bricks- and-mortar retailer’s face greater pressure against online retailers, who can trade 24 hours. The deregulation trade-off will help level the playing field and potentially assist in driving an upswing in retail trade within Greater Adelaide. The State Government’s boost to the infrastructure program has already buoyed job growth, and although coming from a low base, the growth in job advertisements in the last 12 months has been one of the largest nationally.

Total employment has increased, with 17,622 more people employed in South Australia, compared to March 2017 and the unemployment rate is now at its lowest level since 2012. South Australia now has the second highest year-on-year retail trade growth rate of all states and territories and is out-performing the national average. In the year to March 2018, increases were recorded in all sub-sectors, except ‘Department Stores’. While department store spending has been declining since 2012, turnover appears to be stabilising. That said, growth in ‘Food retailing’ and ‘Supermarkets’ is easily offsetting muted growth in 'Department Store' spending.

SA Retail Economic Drivers - % Growth 12 months to AUS SA GDP/SFD Growth Dec-17 2.3 (2.6) 4.5 (2.0) Population Growth Sep-17 1.6 (1.7) 0.6 (0.9) Employment Growth Mar-18 3.1 (1.6) 2.1 (0.7) Unemployment Rate Mar-18 5.5 (5.5) 6.0 (6.1) F/T Earnings Growth Nov-17 2.2 (3.2) 0.1 (3.4) House Price Growth Dec-17 1.9 (4.9) 3.6 (2.7) Apartment Price Growth Dec-17 2.6 (4.2) 5.2 (2.6) Retail Trade Growth Mar-18 2.7 (3.6) 3.4 (2.7) • Food Mar-18 3.1 (4.2) 3.8 (3.9) • Dept Stores Mar-18 0.0 (0.1) 0.0 (-1.3) • H/H Goods Mar-18 2.5 (2.7) 3.3 (0.0) • Clothing Mar-18 3.1 (3.1) 1.3 (2.5) • Cafes Mar-18 3.0 (5.5) 0.3 (4.6) Source: ABS/Savills Research.

Note 10yr Average shown in brackets SA

May 2018 savills.com.au/research 19 $0m $100m $200m $300m $400m $500m $600m $700m Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Shops Other 10,000 20,000 30,000 40,000 50,000 60,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format $0m $100m $200m $300m $400m $500m $600m $700m Regional Sub Regional Large Format City Centre Freestanding Neighbourhood Shops Other 10,000 20,000 30,000 40,000 50,000 60,000 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format Source: Cordell/Savills Research (Year to Mar-18) Total retail transaction volumes ($5m+) in the 12 months to March 2018 amounted to $224 million.

Following a number of transactions in the $20 to $40 million bracket through the year, total volumes are 32% higher than the previous 12 months. In January, 109 Rundle Mall in Adelaide CBD sold for $9.2 million. Leased to Connor Clothing, the sale is a great example of the tightly held nature of the market, particularly in the city’s mall, where very few assets have traded over the past two decades.

A number of non-metro deals occurred, mostly off-market, including the sale of Charter Hall’s Wharflands Shopping Centre for $21 million and Primewest’s acquisition of Pirie Plaza for $32.05 million. In the Large Format segment, Axiom Properties sold Churchill South (Kilburn) for $22.35 million, a centre they started developing in 2011 on land which also houses Bunnings, later sold. Axiom also completed the $42.5 million sale of its 50% interest in Churchill North Shopping Centre to Inheritance Capital Asset Management in March. There is a limited new shopping centre development pipeline in Adelaide, with recent construction activity mostly comprising centre additions and refurbishments.

In the Regional sector, Westfield Tea Tree Plaza Shopping Centre is currently being extended to include a new cinema, restaurants and leisure complex, due late 2018, while the balance of upgrades to Westfield Marion are unlikely to commence prior to 2019. The redevelopment of Port Canal Shopping Centre was approved in September and is due to start this quarter. Works include demolishing the existing complex and the construction of a new two-storey complex. The existing Coles and Kmart building will be retained. The 41,000 square metre District Outlet Centre proposed at Parafield Gardens is yet to commence despite receiving DA, suggesting it is pending lease pre-commitment.

Meanwhile, works have begun on the redevelopment of the former Bridgestone factory on South Road to house a new circa 17,000 square metre Bunnings store.

Sales Activity – SA Supply Pipeline – SA Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) Source: Savills Research (Year to Mar-18) SA Supply Pipeline by Development Stage Source: Savills Research (Year to Mar-18) Under Construction DA 0% 20% 40% 60% 80% 100%

20 Savills Research | Briefing National Retail WA “On the back of strengthening local economic conditions and the decision by some major institutional owners to deploy significant capital into redeveloping Perth’s shopping centres, investor interest is intensifying.” Chris Ireland Director | Retail Investments/Services | Western Australia Overview – WA Confidence has returned to the Western Australia economy with a number of green shoots emerging, the most notable being the rise in employment numbers recently.

Job advertisement numbers have been rising since December 2016, and although coming off a low base, advertisements are now showing the largest year-on-year growth rate nationally, and the highest since early 2012 – the peak of the mining boom. This shift has finally translated into improvements in total employment numbers.

While lower levels of disposable income appears to still be placing some pressure on spending in the short-term as noted by the overall retail trade growth number, indicators suggest that this is beginning to change with growth in discretionary spending for ‘Clothing, Footwear & Personal Accessory retailing’ and ‘Cafes, Restaurants & Takeaway Food Services’, recording annual growth rates at similar or higher levels than the national average. The retail sector in Western Australia is in the process of undergoing one of its most significant changes in decades. Westfield Innaloo, Westfield Carousel, Garden City Booragoon, Karrinyup Shopping City and Ellenbrook Central have received development approval for expansion and redevelopment.

While some of these projects are staged, collectively, master plans propose to add more than 400,000 square metres of new retail space over the next five to eight years, in addition to the refurbishment of their existing floor space. The investments which are institutional led, reflects a high-level of long term confidence in the state’s retail sector. WA Retail Economic Drivers - % Growth 12 months to AUS WA GDP/SFD Growth Dec-17 2.3 (2.6) -1.8 (2.0) Population Growth Sep-17 1.6 (1.7) 0.9 (2.0) Employment Growth Mar-18 3.1 (1.6) 2.0 (1.6) Unemployment Rate Mar-18 5.5 (5.5) 5.9 (4.9) F/T Earnings Growth Nov-17 2.2 (3.2) 1.5 (4.0) House Price Growth Dec-17 1.9 (4.9) -3.2 (0.6) Apartment Price Growth Dec-17 2.6 (4.2) -2.4 (0.5) Retail Trade Growth Mar-18 2.7 (3.6) -0.5 (3.4) • Food Mar-18 3.1 (4.2) 1.1 (4.0) • Dept Stores Mar-18 0.0 (0.1) -2.2 (-0.2) • H/H Goods Mar-18 2.5 (2.7) -6.7 (1.6) • Clothing Mar-18 3.1 (3.1) 3.2 (-0.6) • Cafes Mar-18 3.0 (5.5) 2.0 (6.5) Source: ABS/Savills Research.

Note 10yr Average shown in brackets

May 2018 savills.com.au/research 21 $0m $200m $400m $600m $800m $1,000m $1,200m 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 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format $0m $200m $400m $600m $800m $1,000m $1,200m 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 2018 2019 2020 2021 Regional Sub Regional Neighbourhood City Centre Large Format Source: Savills Research (Year to Mar-18) Source: Cordell/Savills Research (Year to Mar-18) Retail investment volumes ($5m+) have reached $625 million in the 12 months to March 2018, 6.0% more than this time last year.

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 $305 million.

Other than GDI Property’s acquisition of Ikea Perth for $143.5 million in July 2017, there has been a limited number of major transactions in the last two quarters. In January 2018 Coles Riverton sold to a private investor for $31.95 million. Coles Group developed the Freestanding centre in 2016 and at the time of sale was fully leased with a WALE of nearly 14 years, reflective in 5.23% market equated yield achieved. In comparison to the previous five years, Neighbourhood centres remain tightly held with limited activity outside of the sale of Coles Riverton. Any unfulfilled demand in this segment is likely to be redirected into opportunities over the next 12 to 18 months.

A spate of shopping centre redevelopments are underway or in planning across the state. 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 15-20 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 are almost complete at Plaza Arcade to accommodate a two- level tenancy to house Uniqlo, a Japanese retailer making their first foray into Perth market.

Elllenbrook Central had just received DA to add 31,138 square metres of new retail floor space by 2020. In addition, the master plan proposes to add a further 42,547 square metres, currently mooted, potentially increasing the size of the centre by more than 73,000 square metres if both extensions go ahead. Sales Activity – WA Supply Pipeline – WA Sales Activity ($5m+) by Retail Type Supply Pipeline by Retail Type (sq m) WA Supply Pipeline by Development Stage Source: Savills Research (Year to Mar-18) Under Construction DA 0% 20% 40% 60% 80% 100%

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 previous highs of 2015 and 2016 and a greater number of Regional centres are trading. Institutional owners have begun to divest non- core assets, mostly Neighbourhood centres, and to redeploy capital for either development or enhancement of core assets in their existing portfolios. National Neighbourhood centre transactions increased markedly during the last 12 months and this trend could potentially run through 2018/19 as capital continues to seek out well-located retail assets with solid fundamentals. The sale of Large Format centres has also become increasingly competitive, which is aligned with an expected upswing in future supply in this sub-sector over the next few years.

Expect to see a continuation of strong demand across retail generally but prospective purchasers may 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 following 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 Victoria, New South Wales and South Australia 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 Queensland and Western Australia, 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 2018.

Employment has been rising in all states over the last year 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 private investors trade assets selectively in markets where the peak of the market may be approaching. Although limited transactions have been reported in the first quarter of 2018, expect institutional investors to continue to pursue a similar strategy through 2018, potentially sustaining the higher than average deal volumes the market has reported in the last 12 months.

May 2018 savills.com.au/research 23 Recent Sales – City Centre / Other Notable ($100m+) Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m (50%) Queen Victoria Building, (50%) The Galeries, (50%) The Strand Arcade, Sydney NSW (2) GIC Vicinity Centres 556.00 | Nov-17 | 39,599 5.00 | r | n.a Gasworks Plaza, QLD (4) AVEO AMP Capital 242.00 | Dec-17 | 19,089 5.30 | e | 12,677 Soul Pattinson, (Pitt St Mall), NSW Washington H Soul Pattinson & Co Ltd Private Investor 95.5 | Mar-18 | 1,290 n.a | n.a | 74,031 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; (4) Price includes Gasworks mixed-use component.

Recent Sales – Regional Centres Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m (50%) Indooroopilly SC, QLD Commonwealth Superannuation Corp. AMP Capital (1) 795.00 | Nov-17 | 113,116 4.42 | e | 13,835 (25%) Highpoint SC, VIC Besen Group GPT Wholesale Shopping Centre Fund 660.00 | Jul-17 | 153,900 4.21 | e | 17,154 (49%) Chatswood Chase, NSW (2) Vicinity Centres GIC 562.30 | Nov-17 | 63,715 4.75 | r | 18,011 (50%) Rockingham SC, WA (3) Vicinity Centres AMP Capital 305.00 | Nov-17 | 62,314 5.50 | e | 9,789 (50%) Kawana Shoppingworld, QLD Mirvac Group ISPT 186.00 | Dec-17 | 38,403 5.44 | e | 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; (3) Includes surplus land component of $6million.

Recent Sales – Sub-Regional Centres Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m Salamander Bay Centre, NSW Vicinity Centres Charter Hall 174.50 | May-17 | 23,520 5.83 | e | 7,419 Marketown SC, NSW Cartier Group AMP Capital 163.25 | Jun-17 | 26,011 5.78 | e | 6,276 (50%) East Village, NSW Private Developer Mirvac 155.30 | Aug-17 | 33,000 5.25 | i | 9,393 Toormina Garden Shopping Centre, NSW Vicinity Centres / Abu Dhabi Investment Corp. Fort Street Capital Fund III 83.30 | Jan-18 | 20,898 6.75 | e | 3,986 Wodonga Plaza, VIC Vicinity Centres M/Group 43.50 | Jun-17 | 17,503 n.a | n.a | 2,485 (50%) Churchill North SC, SA Axiom Properties Inheritance Capital Asset Management 42.50 | Dec-17 | 32,887 n.a | n.a | 2,585 Muswellbrook Marketplace, NSW Private Investor Muswellbrook Shire Council 34.25 | May-17 | 12,838 8.72 | e | 2,668 Pirie Plaza, SA Private Investor Primewest 32.05 | Sep-17 | 11,029 7.53 | e | 2,906 Source: Savills Research; i = Initial, e = Equated, r = Reported; Key Transactions by Sector

24 Savills Research | Briefing National Retail Recent Sales – Neighbourhood Centres (Top 20 Sales by Value) Property Vendor Purchaser Price ($m) / Date / GLA Yield % / Type / $/sq m Pittwater Place, NSW DB Bank QIC 98.00 | Oct-17 | 12,094 5.82 | i | 8,103 Marketplace Warner, QLD Private Investor AMP Capital Investors 78.35 | Oct-17 | 11,477 5.47 | i | 6,827 Bathurst City Centre, NSW Vicinity Centres QIC 71.15 | Oct-17 | 12,559 6.40 | r | 5,665 Chester Square, NSW Private Investor Private Investor 68.50 | Nov-17 | 8,270 4.23| e | 8,282 Mango Hill Market Place, QLD Private Investor ISPT 61.00 | Nov-17 | 7,862 5.57 | i | 7,759 Albany Creek Square, QLD Charter Hall Fortius 55.88 | Nov-17 | 10,068 6.96 | i | 5,550 Bluewater Square, QLD Alceon Elanor Investors 55.25 | Nov-17 | 10,004 7.65 | i | 5,523 Benowa Village, QLD Coles Property Group Foreign Investor (China) 49.50 | Oct-17 | 6,318 5.10 | e | 7,835 Arena SC, VIC Parklea Developments Foreign Investor (China) 48.10 | Apr-17 | 8,144 5.39 | e | 5,906 Worongary Town Centre, QLD AHC SCA Property Group 46.30 | Jun-17 | 6,906 6.21 | e | 6,704 Century City Walk SC, VIC Challenger Group iProsperity Group 45.00 | May-17 | 8,352 6.30 | r | 5,388 Woodcroft Village, NSW Haben Property Fund Private Investor 43.85 | Sep-17 | 4,669 5.79 | e | 9,408 Peregian Springs, QLD Alceon Group / CPRAM Investments Private Investor 41.50 | Aug-17 | 4,772 5.55 | e | 8,697 Entrada SC, NSW Centennial Property Group Cook Property Group 41.33 | Jul-17 | 5,570 5.67 | e | 7,418 Highfields Village, QLD Private Investor Charter Hall Retail REIT 41.00 | Jun-17 | 6,366 6.02 | i | 6,440 Illawong Village, NSW Private Investor Private Investor 40.00 | Sep-17 | 6,471 5.84 | e | 6,181 Clifton Village, QLD Arkadia IBA 36.00 | Nov-17 | 7,900 6.50 | i | 4,557 Mudgeeraba Market, QLD Private Investor SCA Property Group 35.80 | May-17 | 6,092 6.00 | i | 5,877 Park Village, QLD Receivers & Manager Appointed Private Investor 35.20 | Jun-17 | 6,421 6.27 | r | 5,482 Torquay Village, VIC Coles Property Group Private Investor 35.00 | Feb-18 | 6,779 6.20 | e | 5,163 Source: Savills Research; i = Initial, e = Equated, r = Reported; Key Transactions by Sector (continued)

May 2018 savills.com.au/research 25 Recent Sales – Large Format Retail (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 336.00 | May-17 | 51,936 5.51 | i | 6,470 IKEA, WA Cebas Pty Ltd GDI Property Group 143.50 | Jul-17 | 27,077 7.80 | i | 5,300 Home HQ Artarmon, NSW Blackstone Property Group Fortius 140.10 | Dec-17 | 22,199 6.38 | e | 6,311 Brickworks Centre, Southport, QLD Private Investor AMP Capital Investors 137.54 | Aug-17 | 15,844 5.09 | e | 8,681 Home Hub Marsden Park, NSW Lasalle Investment Management Aventus Retail Property Fund 100.00 | May-17 | 19,833 6.00 | i | 5,042 Bunnings Caringbah, NSW # Wesfarmers CBRE Global Investors 59.60 | Jul-17 | 15,912 5.26 | e | 3,746 Bunnings Bonnyrigg, NSW # Wesfarmers CBRE Global Investors 45.50 | Jul-17 | 15,196 5.28 | e | 2,994 West Gosford Hometown, NSW Harrington Property Primewest 45.00 | Dec-17 | 15,886 7.25 | e | 2,833 Tweed Hub, NSW (5) Aventus Retail Property Fund MPG 40.08 | Dec-17 | 9,763 7.42 | r | 4,105 Bunnings Windsor Gardens, SA # Wesfarmers CBRE Global Investors 38.50 | Jul-17 | 13,657 5.50 | e | 2,819 Ipswich Homebase, QLD Sentinel PG PrimeWest 36.25 | Jan-18 | 12,903 7.45 | e | 2,809 5 Clayton St, Midland, WA Primewest Australiasian Property Investments (APiL) 30.75 | Jul-17 | 9,727 7.30 | i | 3,161 Good Guys Caringbah, NSW Private Investor Private Investor 29.45 | Sep-17 | 5,569 6.26 | i | 5,288 Bunnings Mernda, VIC RCL Group Private Investor 25.00 | Dec-17 | 15,000 5.10 | r | 1,667 Churchill South Centre (Kilburn), SA Axiom Property Private Investor 22.35 | Sep-17 | 7,404 7.21 | e | 3,019 Shepparton Home, VIC (5)) Aventus Retail Property Fund Syndicate 20.00 | Dec-17 | 13,661 7.00 | r | 1,464 3 Montpelier Rd, Bowen Hills, QLD Private Investor Unified Property Group 16.20 | Jul-17 | n.a.

6.37 | e | n.a. Woolcock St Super Stores, Currajong, QLD Private Developer Properties & Pathways 16.00 | Jul-17 | 6,864 7.35 | e | 2,331 Bunnings Bairnsdale, VIC Undisclosed Undisclosed 12.42 | Dec-17 | 8,558 5.66 | r | 1,451 Tuggerah Central, NSW Private Investor Private Investor 10.80 | Jan-18 | 4,118 6.37 | e | 2,623 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; (5) Offered as a portfolio of two properties, but sold to separate purchasers. Key Transactions by Sector (continued)

May 2018 savills.com.au/research 26 Savills Research | Briefing National Retail Savills National Contacts - Retail This information is general information only and is subject to change without notice. No representations or warranties of any nature whatsoever are given, intended or implied. Savills will not be liable for any omissions or errors. Savills will not be liable, including for negligence, for any direct, indirect, special, incidental or consequential losses or damages arising out of our in any way connected with use of any of this information. This information does not form part of or constitute an offer or contract.

You should rely on your own enquiries about the accuracy of any information or materials. All images are only for illustrative purposes. This information must not be copied, reproduced or distributed without the prior written consent of Savills. New South Wales Research Katy Dean +61 (0) 2 8215 6011 kdean@savills.com.au Research Peter Sutherland +61 (0) 2 8215 8980 psutherland@savills.com.au Valuations Chris Paul +61 (0) 2 8215 8850 cpaul@savills.com.au Asset Management Ben Nastasi +61 (0) 2 8215 8893 bnastasi@savills.com.au Retail Investments Steven Lerche +61 (0) 2 8215 8929 slerche@savills.com.au Project Management Adele Eagleton +61 (0) 2 8215 6069 aeagleton@savills.com.au Retail Services Leighton Hunziker +61 (0) 2 8215 8838 lhunziker@savills.com.

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