CAPITAL MARKETS 2021 - Colliers International

CAPITAL MARKETS 2021 - Colliers International

                                                                     MARKETS2021                OUTLOOK

                                                                                                          COLLIERS INTERNATIONAL
                                                 AUSTRALIA & NEW ZEALAND

                 1                              AUSTRALIA & NEW ZEALAND | MARKET OUTLOOK 2021
CAPITAL MARKETS 2021 - Colliers International
In Australia, real estate transactions were down 58 per cent,          So far in 2020, the assets that have traded have shown
                                                The pandemic has had deep

                                                                                                                                            with $10.96 billion of assets traded during the first three            minimal movement on yield metrics, reflecting significant
                                                economic ramifications across the                                                           quarters of 2020. The office and the retail sectors were the           pent-up capital seeking placement and the lack of stock
                                                globe during 2020. This economic                                                            most impacted, with volumes down 75 per cent and 29 per                available for sale. However, the flight to quality thematic is
                                                                                                                                            cent respectively. The industrial and logistic sector was more         beginning to play out as investors chase strong covenanted
                                                slow-down is evident through the                                                            resilient, supported by strong fundamentals and an increasing          assets with long WALEs. Most of the major domestic
                                                fall in transaction levels within                                                           reliance on logistics networks, with transaction volumes up 6          institutional investors are well capitalised with several
                                                                                                                                            per cent compared to the same period last year.                        undertaking capital raisings to shore up their balance sheets.
                                                commercial real estate.                                                                                                                                            Gearing is much lower than during the GFC which gives
                                                                                                                                            QLD (-67 per cent), NSW (-66 per cent), WA (-38 per cent),             many institutional owners the ability to ride through the initial
                                                Transaction levels have decreased significantly during the first three                      VIC (-29 per cent) and SA (-7 per cent).                               pandemic period. In addition, most of the reporting period has
                                                quarters of the year. While the retail and hotel sectors were strongly
                                                                                                                                                                                                                   suggested that yields have held or tightened in the office and
                                                impacted, the office sector has recalibrated with a focus on occupancy                      However, despite travel restrictions, offshore investors
                                                                                                                                                                                                                   industrial markets however the retail sector has seen a write
                                                and the industrial sector has shown resilience. Overall, the high                           continued to see value in the Australian market and capital
                                                                                                                                                                                                                   down in book value for many of the major retail assets and
                                                degree of uncertainty caused both vendors and purchasers to pause                           inflow remained strong, representing 32 per cent of deal
                                                                                                                                                                                                                   cap rates have softened by up to 26 basis points, depending
                                                investment decisions until the effects of the pandemic on occupancy                         volumes to date. Foreign purchasers are also seeing a currency
                                                                                                                                                                                                                   on asset, between December 2019 and June 2020.
                                                and income levels are better understood. Institutions and investors                         advantage, resulting in significant offshore capital looking for
                                                decided to hold divestment mandates as they wait for evidence to                            opportunities in Australia.
                                                analyse the impact of COVID-19 on investment metrics.

                                                According to Real Capital Analytics, global real estate transactions are                                                                                                  AT THE BEGINNING OF THE PANDEMIC, THE FOREIGN
                                                                                                                                                                                                                          INVESTMENT REVIEW BOARD IMPLEMENTED A
                                                down 40 per cent in the first three quarters of the year compared to                        AUSTRALIAN
                                                                                                                                            TRANSACTIONS                                                                  TEMPORARY RESPONSE TO COVID-19.

                                                the same period last year. The decline is more pronounced in the Asia                                                                                                     This change has lowered the threshold for foreign investment
                                                Pacific region with a 42 per cent decrease in transaction volumes                                                                                                         to zero dollars meaning all foreign investment and leases to
                                                over the same period. Asia was the first continent to be hit by the                                                                                                       foreign companies would require FIRB approval. To allow for
                                                                                                                                                                                                                          the reviewing of all applications the timeframe to review has
                                                pandemic and consequently the first region to establish lockdown
                                                                                                                                                                                                                          increased from 30 days up to six months. There have been
                                                policies, affecting transaction volumes early on this year.                                                                                                               some administrative changes made to be able to streamline
                                                                                                                                                                                                                          the application process and our experience is that the review
                                                GLOBAL                  ASIA PACIFIC                                                                                                                                      process is much faster than six months.
                                                TRANSACTIONS            TRANSACTIONS

                                                -40% -42%

                                                                                                                                                                                                                                                                                          COLLIERS INTERNATIONAL
             2                                                   Introduction      |   Colliers Edge      |   Office       |   Retail   |      Industrial & Logistics   |    Hotels     |   NZ Overview        |      Transactions 2020              |     Authors & Teams
CAPITAL MARKETS 2021 - Colliers International

                                                ESTATE INDUSTRY, WE UNDERSTAND
                                                THE DEMAND FOR RELIABLE AND                         IN-DEPTH DATA                         INSIGHTS                                     DETAILED TRANSACTIONS
                                                ACCURATE DATA IS MORE PREVALENT                     Granular datasets covering            Our experienced research team                Individual reporting
                                                THAN EVER.                                          historical and forecast data          will help you understand quarterly           of major transactions.
                                                                                                    with over 2,000 datapoints            changes, as well as broader themes
                                                                                                    updated quarterly.                    behind each sector and market.
                                                Our enterprising technology, Colliers
                                                Edge, offers comprehensive property
                                                data that enables you to delve deeper
                                                into the Australian property market,
                                                using data to become more informed

                                                and deliver enduring value.

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                                                service developed by our in-house

                                                                                                   THE POTENTIAL
                                                research experts, who collaborate with
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                                                                                                                                SED UT PERSPICIATIS

                                                                                                   OF DATA
                                                                                                                                Sed ut perspiciatis unde omnis iste
                                                                                                                                natus error sit voluptatem acium.

                                                                                                                                                                                                                                  JOANNE HENDERSON

                                                                                                                                                                                                                                                                  COLLIERS INTERNATIONAL
                                                                                                                                                                                                                                  Director | Research

                                                                                                                                                                                                                                  +61 410 391 093

                                                Colliers Edge.
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              3                                           Introduction   |   Colliers Edge   |   Office     |    Retail     |      Industrial & Logistics             |   Hotels   |    NZ Overview             |   Transactions 2020    |   Authors & Teams
CAPITAL MARKETS 2021 - Colliers International
To better understand the impact of a global economic crisis           The latest REITs reporting season highlights the strong
                                                Office fundamentals remain strong.

                                                                                                                                          on the investment market, we looked at the most recent crisis         fundamentals and optimistic outlook of the office sector.
                                                The COVID-19 pandemic initally halted capital investments into the                        being the GFC and sought guidance and comparison.
                                                                                                                                                                                                                Rent collections reported by the major REITs are well above
                                                office sector as a reaction to domestic restrictions. With the vast
                                                                                                                                          In the lead up to the GFC in September 2008, capital values           90 per cent across their office portfolio.
                                                majority of office workers required to work from home, this left the
                                                                                                                                          grew significantly, domestic institutional investors had higher
                                                market questioning the future of flexible working and the relevance of                                                                                          While there has been some write downs in values, it appears
                                                                                                                                          leverage and the AUD was at near parity with the USD. Yield
                                                corporate offices.                                                                                                                                              to come mostly from below the line adjustments to protect
                                                                                                                                          compression was substantial and peak yields fell below the
                                                                                                                                          bond rate.                                                            income. Most office portfolios have seen no change in cap
                                                The uncertainty around future occupancy levels, together with strict
                                                                                                                                                                                                                rates between December 2019 and June 2020.
                                                domestic and international travel restrictions halted a majority of
                                                                                                                                          With the combination of all of these factors it became evident
                                                capital investment flows. Many current transactions were put on                                                                                                 Transaction volumes have fallen during the first half of year.
                                                                                                                                          the risk was not adequately priced and hence yields softened
                                                hold until there is more clarity in the leasing market and future                                                                                               As we are now seeing an increase in activity, we expect to
                                                                                                                                          that dramatically in the office market when the GFC hit.
                                                performance.                                                                                                                                                    record more transactions during the final quarter of the year.
                                                                                                                                          The economic impacts of the COVID-19 crisis will be far               Offshore groups are expressing a strong interest to invest
                                                After a strong year in 2019 with $25.0 billion of sales, a sharp drop
                                                                                                                                          deeper and will be felt for a longer period.                          in the Australian market, and while travel restrictions are
                                                was recorded during the first three quarters of 2020, with sales
                                                                                                                                                                                                                still in place, onshore managers are able to assist with the
                                                volumes falling to $4.3 billion.                                                          Key differences with the GFC are the RBA interest rate is at          acquisition process.
                                                                                                                                          a record low, the AUD well below the USD and institutions
                                                The Australian’s office market is facing headwinds with a focus
                                                                                                                                          are far less leveraged. The spread to the risk-free rate
                                                on having secure short-term cashflow. Key metrics such as net
                                                                                                                                          is above the long-term average and therefore the risk is
                                                absorption and vacancy rates are forecast to move, reflective of
                                                                                                                                          adequately priced.                                                          THE ‘FLIGHT TO QUALITY’ SHIFT FROM CAPITAL.
                                                the current clouded environment. Companies are still gauging the
                                                effects of the pandemic on their business performance before making                                                                                                   When the market is softer, prime grade assets anchored by
                                                                                                                                          Foreign purchasers are also seeing a currency advantage                     secure covenants usualy benefit from a ‘flight to quality’. The
                                                decisions on head count and office requirements.                                          and are showing a strong interest in pursuing acquisition                   value of these assets are holding, with potential for further yield
                                                                                                                                          opportunities in the country.                                               compression expected through the cycle.
                                                Incentives are likely to increase as institutional landlords want to
                                                preserve occupancy and face rents.

                                                Periods of negative net absorption and increased incentives are
                                                not unusual as the demand for office space is typically sensitive to
                                                economic cycles.

                                                However, the office sector has proven its resilience as lease

                                                                                                                                                                                                                                                                                            COLLIERS INTERNATIONAL
                                                structures help protect income through these periods. The last
                                                reporting season showed the strong fundamentals of the office sector
                                                and delivered a positive outlook.

                                                                                                                                          TOTAL SALES                TOTAL SALES
                                                                                                                                          VOLUMES                    TO Q3 2020

                                                                                                                                          75%                        $4.3B

             4                                                    Introduction     |    Colliers Edge      |    Office   |   Retail   |     Industrial & Logistics     |    Hotels   |    NZ Overview       |      Transactions 2020              |     Authors & Teams
CAPITAL MARKETS 2021 - Colliers International
Australian Office Market Snapshot.                                                                         PURCHASER TYPE

                                                Investment activity is expected to increase above average levels in 2021
                                                with investors having substantial capital to be invested in the office market.                                                                             UNDISCLOSED


                                                OFFICE MARKET SALES VOLUMES - CBD & METRO
                                                                                                                                                                                       PURCHASER                                                              PURCHASER
                                                                                                                                                                                          TYPE                                                                   TYPE
                                                                                                                                                                                        2019                 DOMESTIC          OFFSHORE
                                                                                                                                                                                                                                                               2020                          DOMESTIC

                                                                                                                                                           39%                                                  60%            46%                                                               54%

                                                                    2019                  Q3

                                                                                                                                                           SOURCE OF PURCHASER CAPITAL - CBD & METRO

                                                                                                              137 ASSETS

                                                                                                                                                                                                                                            CHINA                     HONG KONG
                                                                                                                                                                                                                                            SHARE 2019  1%            SHARE 2019    8%

                                                                                                                                                                                                                                            SHARE 2020 24%            SHARE 2020
CAPITAL MARKETS 2021 - Colliers International
Case Study.

                                                PARTNERSHIP BETWEEN CROMWELL AND
                                                BLACKROCK FORMED THROUGH $120M
                                                SALE IN SYDNEY.

                                                Our experts transacted 475 Victoria Avenue,
                                                Chatswood (50 per cent) on behalf of our client
                                                Cromwell to BlackRock.

                                                We worked with our client Cromwell on reviewing their capacity
                                                to unlock capital for further reinvestments into their development
                                                pipeline, including additional NLA for 475 Victoria Avenue,

                                                We sought a suitable partner who would agree to retain the
                                                existing management structure and would provide conviction to
                                                speculatively develop additional NLA on the site.

                                                                                                                                                                                                                 Office Outlook.
                                                ASSET SUMMARY                                                                                                 $120M
                                                Situated in the heart of the booming Chatswood precinct, 475 Victoria Avenue comprises two                                                                       The outlook for the office market remains very positive. There has been many articles written on
                                                13-level office buildings, ground floor retail and three levels of basement parking. The asset
                                                                                                                                                              A$240 MILLION (GAV)                                the underlying fundamentals of the office with work from home being widely adopted, affecting
                                                comprises dual frontages, with access to Victoria Avenue and Brown Street and has a NLA                       A$120 MILLION (50%)
                                                of 24,812sqm with a site area of approximately 6,030sqm. The asset sits between the main
                                                                                                                                                                                                                 occupancy and take up. While flexibility will become more prevalent, recent surveys showed that
                                                northern rail line and newly completed metro north rail and the Pacific Highway.
                                                                                                                                                              DATE                                               over 85 per cent of office workers do not want to give up their desk. Building company culture
                                                                                                                                                              FEBRUARY 2020 (EXCHANGE)
                                                                                                                                                              MAY 2020 (SETTLEMENT)
                                                                                                                                                                                                                 and collaboration are also key aspects of the office environment. This will underpin long term
                                                                                                                                                                                                                 occupancy and performance.
                                                                                                                                                              NLA               RATE/SQM     INITIAL YIELD
                                                                                                                                                              24,812SQM         $9,673/SQM   5.2%*

                                                                                                                                                                                                                                                                                                                         COLLIERS INTERNATIONAL
                                                                                                                                                                                                                 We expect that the office sector will continue to attract strong demand. Australian real estate
                                                                                                                                                              *   approximate
                                                RESULT                                                                                                                                                           remains highly attractive globally. High yields, a resilient economy and political stability underpin
                                                We worked on behalf of Cromwell on a capital partnering transaction on the basis of a 50 per                  AT COLLIERS, WE MAXIMISE THE
                                                                                                                                                                                                                 the strong market fundamentals. Many offshore groups have management teams in place in
                                                cent acquisition. We introduced BlackRock as a suitable value-add partner, given their recent                 POTENTIAL OF PROPERTY TO                           Australia and we expect flow of capital to continue to increase through to 2020 and into 2021.
                                                track record on The Zenith and their conviction of long term growth in the Chatswood market.                  ACCELERATE THE SUCCESS OF
                                                                                                                                                              OUR CLIENTS. THIS TRANSACTION
                                                The off-market transaction created a new partnership between Cromwell and BlackRock, with                     ENSURED CROMWELL HAD MAXIMISED                     With the high demand for prime grade stock, we expect that cap rates will hold, and prime assets
                                                                                                                                                              THEIR PROPERTY STRATEGY FOR
                                                the view of aligning a current asset management plan along with a development plan, given                     THE LONG-TERM BENEFIT OF THEIR
                                                                                                                                                                                                                 with long WALE and strong covenants could see further cap rates compression and uplift in
                                                the underutilised nature of the current site.                                                                 BUSINESS.                                          value. The two tiered market will become more obvious and secondary assets with high vacancy
                                                                                                                                                                                                                 levels will see decline in values due to longer let up periods and possible cap rates softening.

              6                                                        Introduction          |     Colliers Edge          |      Office          |   Retail   |       Industrial & Logistics         |       Hotels   |    NZ Overview         |    Transactions 2020          |    Authors & Teams
CAPITAL MARKETS 2021 - Colliers International
Investment activity in the retail sector has been sustained by              Portfolios heavily weighted towards regional centres saw larger
                                                Retail recovery is on the horizon.

                                                                                                                                           transactions of well located, neighbourhood-based centres, which            falls in rent collections in Q2 2020. By contrast, portfolios with a
                                                The retail sector has seen one of the largest impacts during the                           we expect to continue through to the end of the year. What has              higher exposure to convenience-based retailers saw substantially
                                                COVID-19 pandemic, however there are signs that a recovery in                              been absent this year is the large regional centre transactions             higher rental collections.
                                                household consumption is on the horizon. Spending patterns have                            which significantly boost total sales.
                                                                                                                                                                                                                       Through July and August several of the large retail landlords
                                                been significantly disrupted with some categories such as travel being
                                                                                                                                           The retail property sector has seen unprecedented disruption                reported a substantial improvement in rent collections with most
                                                off the cards for Australian households during 2020. Last year travel
                                                                                                                                           to operations and income as a result of the COVID-19 pandemic.              Code of Conduct lease negotiations resolved.
                                                accounted for $110 billion with approximately half being international
                                                                                                                                           However, the amount of disruption experienced across each
                                                travel. Coupled with Federal Goverment stimulus and early                                                                                                              With this high level of disruption and income write downs due to
                                                                                                                                           retail sub sector has not been equal. Convenience based centres
                                                superannuation withdrawals, Australian households have contributed                                                                                                     the Code of Conduct, most of the listed sector have undertaken
                                                                                                                                           anchored by supermarket tenants have seen some turnover
                                                over $70 billion into the economy between March and September                                                                                                          external revaluations of their entire portfolio which has been
                                                                                                                                           growth through greater basket sizes during the lock down period,
                                                and used the balance to build up their savings. Household savings                                                                                                      reported as of June 2020. Listed owners of retail have factored
                                                                                                                                           while ‘higher order’ centres with discretionary and ‘retailtainment’
                                                increased dramatically during the June quarter jumping from 6.0                                                                                                        in softened cap rates, together with below the line provisions
                                                                                                                                           offers have seen significant footfall impacts. States which have
                                                percent in March to 19.8 per cent in June. This level of saving gives                                                                                                  for lost income and potential falls in occupancy between the
                                                                                                                                           seen restrictions largely lifted are seeing foot traffic close to pre
                                                the capacity for household consumption to improve substantially in the                                                                                                 December 2019 and June 2020 reporting seasons.
                                                                                                                                           COVID-19 levels and a recovery in retail sales.
                                                coming quarters, which bodes well for the retail sector into 2021.
                                                                                                                                           Most transactions and divestment programs in the first half of              Our analysis of changes in cap rates saw regional and sub-
                                                Through the height of the COVID-19 pandemic, we saw most                                                                                                               regional centres soften on average 26 basis points, with CBD
                                                                                                                                           2020 were placed on hold while the implications of the pandemic
                                                investment activity across all property sectors halted, with the retail                                                                                                retail softening 17 basis points and neighbourhood centres by
                                                                                                                                           became more apparent. The federal government’s Code of
                                                sector bearing the greatest exposure to the lockdown measures.                                                                                                         just 14 basis points. All retail portfolios have seen a fall in values
                                                                                                                                           Conduct has resulted in selective rent holidays, abatements and
                                                However, as restrictions have eased in most States we see that                                                                                                         between December 2019 and June 2020.
                                                                                                                                           waivers which significantly impacted rental collections through the
                                                demand for high quality centres, regardless of size, is emerging.
                                                                                                                                           April to June period.
                                                Centres servicing a strong catchment which have seen sustained
                                                capital investment and are leased to a high proportion of non-
                                                discretionary tenants will always be in demand, regardless of the                                                                                                             RARE TRADE OPPORTUNITIES.
                                                                                                                                           NEIGHBOURHOOD CENTRE                  NEIGHBOURHOOD CENTRE
                                                economic cycle.                                                                            TRANSACTION VALUE ($)                 TRANSACTION VALUE ($)                        We expect that there is likely to be some further disruption in the
                                                                                                                                           Q3 CY2019                             Q3 CY2020
                                                                                                                                                                                                                              retail sector as retailers and landlords come to terms with the
                                                As a ‘COVID normal’ emerges, we are starting to see the return of
                                                investment in the retail sector and expect that investment volumes will
                                                improve through to the end of 2020.
                                                                                                                                           $1.09B                               $1.18B                                        ‘COVID normal’. We expect this to lead to opportunity in the current
                                                                                                                                                                                                                              environment to purchase “Trophy” assets that are rarely traded.
                                                                                                                                                                                                                              If uncertainty around trading conditions continues and liquidity is
                                                                                                                                                                                                                              required, there will be an assessment of major portfolios which may
                                                                                                                                                                                 SPRING FARM                                  provide opportunities for assets to come to the market which may
                                                In the first three quarters of 2020, investment volumes were                                                                     SHOPPING CENTRE
                                                                                                                                                                                                                              have not been traded in many years. To reinforce this point, we have
                                                                                                                                                                                 SOLD BY: COLLIERS

                                                                                                                                                                                                                                                                                                        COLLIERS INTERNATIONAL
                                                estimated at $$2.66 billion across 70 assets. This is a 29 per cent
                                                decrease in value and 16 per cent decrease in total assets when                                                                  $34.75M 5.77%       YIELD                    witnessed a significant increase in the number of investors looking to
                                                                                                                                                                                                                              retail, in order to take advantage of generational pricing dislocation,
                                                compared to the corresponding period in 2019.                                                                                                                                 combined with record low interest rates.

              7                                                   Introduction     |    Colliers Edge     |    Office     |   Retail   |     Industrial & Logistics      |    Hotels     |     NZ Overview         |      Transactions 2020                |      Authors & Teams
CAPITAL MARKETS 2021 - Colliers International
Australian Retail Market Snapshot.                                                                                                                PURCHASER TYPE

                                                Investment activity is expected to increase as investors are well
                                                capitalised and ready to take advantage of buying opportunities.
                                                                                                                                                                                                  OFFSHORE                                                                OFFSHORE

                                                                                                                                                                                                  14%                                                                     9%
                                                RETAIL SALES VOLUMES
                                                                                                                                                                                                                              PURCHASER                                                                  PURCHASER
                                                                                                                                                                                                                                 TYPE                                                                       TYPE
                                                                                                                                                                                                                                  2019                   DOMESTIC
                                                                                                                                                                                                                                                                                                           2020                            DOMESTIC

                                                                                                                                                                                                                                                             86%                                                                               91%

                                                                   2019                            Q3

                                                                                                                                                                                                  SOURCE OF PURCHASER CAPITAL

                                                                                                                                       83 ASSETS

                                                                                                                                                                                                                                                                                       CHINA                      MACAU
                                                                                                                                                                                                                                                                                       SHARE 2019   3%            SHARE 2019      0%

                                                                                                                                                                                                                     CANADA                                                            SHARE 2020   1%            SHARE 2020      1%
                                                                                                   Q3                                                                                                                SHARE 2019   2%
                                                                                                                                                                                                                     SHARE 2020   0%                                SWITZERLAND
                                                                                                                                                                                                                                                                    SHARE 2019    0%
                                                                                                                                                                                                                                                                    SHARE 2020    4%

                                                                       $2.676B                                                                                                                                                                                                                                       HONG KONG
                                                                                                                                                                                                                                                                                                                     SHARE 2019
                                                                                                                                                                                                                                                                                                                     SHARE 2020

                                                                       CHANGE                                                          70 ASSETS                                                                                                SHARE 2019   3%
                                                                       LY                                                                                                                                                                       SHARE 2020   0%
                                                                                                                                                                                                  SHARE 2019    1%

                                                                                                                                                                                                                                                                                                                                                      COLLIERS INTERNATIONAL
                                                                                                                                                                                                  SHARE 2020    0%                                                                                                                TAIWAN
                                                RETAIL SALES VOLUMES BY ASSET CLASS                                                                                                                                                                                                                                               SHARE 2019   2%
                                                                                                                                                                                                                                                                                                                                  SHARE 2020   1%
                                                                                                                                                                                                                                                                                       SHARE 2019
CAPITAL MARKETS 2021 - Colliers International
Case Study.

                                                No industry is ever unchanging. At the beginning of the millennium, change
                                                in retail meant seeking growth and expanding store networks.

                                                Historically low supply of retail floorspace per person, high foot traffic,
                                                sustained population growth and low penetration of online retail
                                                characterised the retail environment in Australia. With little barriers to entry,
                                                having a shopping centre presence made sense for local retailers who saw
                                                growth prospects in brick and mortar expansion.

                                                Over the last decade, Australia has emerged as the place to be for global
                                                brands. International retailers have established a strong presence in the
                                                country with more than 140 new entrants since 2012.

                                                The next decade is expected to be very different. A subdued economic
                                                climate and consumer confidence, change in consumer habits, plateauing
                                                discretionary sales and shift to online shopping are likely to have a profound
                                                impact on the industry. The COVID-19 pandemic will also be a massive
                                                catalyst for change.

                                                Looking forward we expect retailers will begin rationalising their store                             We studied the trade area of a super-regional, top 10 ranking                Retailers are also realising that pureplay ecommerce is not the
                                                networks, preferring to occupy space in high-quality shopping centres                                shopping centre in Australia. The trade area includes three                  way forward and omni channel retailers are reporting stronger
                                                serviced by strong catchments and high footfall. In this scenario increased                          sub-regional centres in the primary and secondary sectors, and               growth. Online retailers are generally not as profitable as their
                                                efficiency, more sophisticated leasing decisions and site selection with                             three regional centres in the tertiary sectors. We found that 72             brick and mortar equivalents; typically, variable costs are higher
                                                relevance to the needs of the local trade area will be essential.                                    per cent of tenants in the studied centre were also represented              and increased volumes does not fractionalise costs.
                                                                                                                                                     in a competing centre. This number reaches 80 per cent when
                                                Scrutinisation of store location and performance is likely to lead to                                considering the national and chain tenants only. This analysis               When stores open, it creates a halo effect for ecommerce sales
                                                opportunistic closures freeing up capital to redeploy towards network                                typically outlines the opportunity for consolidation while also              because it generates awareness and customer engagement. On
                                                consolidation. This will allow retailers to improve efficiency by driving profit                     keeping a physical presence in a catchment.                                  average, when a retailer closes a physical store, it loses 83 per
                                                out of key locations.                                                                                                                                                             cent of online customers in the catchment. Retailers are aware
                                                                                                                                                     In the medium-term future, retailers will rationalise their store            that a physical store footprint is necessary to achieve strong
                                                                                                                                                     network and will most likely decide to keep a physical presence              online sales growth.

                                                                                                                                                                                                                                                                                                         COLLIERS INTERNATIONAL
                                                                                                                                                     in CBDs and high quality centres. Store rationalisation is not all
                                                                                                                                                     bad news for retail as we will see the emergence of fewer, but               The better-quality centres, those with the most traffic, will be the
                                                                                                                                                     better stores. In addition, the lost sales from store closures will be       ones where the retailers want to be located and will emerge as
                                                                                                                                                     redirected towards other stores of the same network, increasing              winners in this process. We expect to see continued demand for
                                                                                                                                                     profitability – or towards other retailers proposing a more                  space in the high-quality, dominant and well managed shopping
                                                                                                                                                     relevant offer. Previously held market share will be freed up once           centres.
                                                                                                                                                     competitors fall away, and some outperforming players will be
                                                                                                                                                     emboldened by opportunities that arise during the consolidation

              9                                                    Introduction       |     Colliers Edge       |    Office         |   Retail   |     Industrial & Logistics      |    Hotels      |     NZ Overview         |      Transactions 2020          |    Authors & Teams
CAPITAL MARKETS 2021 - Colliers International
Retail Outlook.

                                                We are starting to see that there is hope for recovery in the retail
                                                sector over the next 6 to 12 months due to a significant increase in
                                                household savings. Labour markets appear to be recovering faster
                                                than expected with a fall in unemployment and the participation rate
                                                is trending back to pre COVID-19 levels in some states. As more
                                                confidence returns to the economy and labour markets, consumers
                                                will be more inclined to spend some of their savings which will largely
                                                benefit the retail sector. Customers are starting to return to large
                                                centres while some of the penetration of online shopping easing,
                                                although remains above pre COVID levels. With consumers not able
                                                to travel internationally, there is a greater uptake on local holidays,
                                                however some of this spending is likely to be retargeted to consumer
                                                goods, thereby offsetting impacts to decreased foot traffic in the
                                                medium term.

                                                We expect that once comfort in medium to long term forecasts
                                                are reached by investors, capital will look to exclusively target
                                                assets underpinned by strong catchments with ideal property level
                                                fundamentals. This mismatch between ‘ideal vs. challenged’ assets
                                                will become much starker and create a significant two tired market,
                                                and we believe that the saleability of some assets will be challenged
                                                without significant repositioning potential.

                                                Centres which have received sustained investment over its lifecycle
                                                in order to maintain relevance with its local catchment, will continue
                                                to be highly sought over the short term, with investors being
                                                opportunistic where the investment profile is right.

                                                We expect that non-discretionary centres will be in high demand
                                                and that there is a possibility of yield compression and increased

                                                                                                                                                                                                                                                  COLLIERS INTERNATIONAL
                                                values for well-located, strong catchment centres. There are several
                                                institutions which are looking to invest further in this sector. Large
                                                Format Centres have continued to perform well and have seen limited
                                                valuation write downs.

                                                We also expect that quality assets regardless of size and sub-category
                                                which have strong catchments and performance will continue to be
                                                in demand. The next 12 months could provide some significant buying
                                                opportunities for long held trophy assets.

    10                                                            Introduction       |    Colliers Edge      |    Office   |   Retail   |   Industrial & Logistics   |   Hotels   |   NZ Overview   |   Transactions 2020   |   Authors & Teams
SALE & LEASEBACK TRANSACTIONS                                          Given pricing has remained firm for industrial assets post
                                                Industrial & Logistics in demand.

                                                                                                                                           Given increased pressure on balance sheets, many industrial            COVID-19 when compared to other sectors, corporates are
                                                Industrial and logistics property has been brought to the forefront in                     businesses are reassessing their capital needs to support their        unlocking the true value of their asset and leaving no money on
                                                2020 and is now the most sought-after real estate asset class among                        long-term growth. Each business has been impacted differently          the table.
                                                a large share of institutions and private investors. Beyond the macro                      by COVID-19 with some reporting a significant pick-up in business
                                                                                                                                                                                                                  While not a new phenomenon, sale and leaseback activity in the
                                                themes, investment allocations to the sector have risen significantly                      revenue while there are others who will struggle to trade through
                                                                                                                                                                                                                  sector has represented 60 per cent of total investment volumes
                                                over the past 12 months as groups reweight from other real estate                          the current period.
                                                                                                                                                                                                                  so far in 2020 with $2.16 billion trading over the period. By
                                                sectors or look to gain further exposure while the depth of capital is
                                                                                                                                           While the overall financial impact of COVID-19 is still unknown,       comparison, approximately $1.4 billion in sale and leaseback
                                                continuing to place downward pressure on yields.
                                                                                                                                           there will be several months of operational impacts across most        transactions were recorded in 2019.
                                                In recent times of economic uncertainty, the industrial and logistics                      industries. Although industrial businesses have been more
                                                                                                                                                                                                                  Given the current economic uncertainty and coupled with the
                                                sector has proven to be resilient, buoyed by several cyclical and                          sheltered in recent months given the exponential growth of
                                                                                                                                                                                                                  low interest rate environment, sale and leaseback transactions
                                                structural tailwinds which continue to underpin the occupier market.                       e-commerce and demand for food and pharmaceutical goods,
                                                                                                                                                                                                                  represent a viable opportunity for corporates to liberate capital
                                                These fundamentals have not gone unnoticed from an investment                              businesses have become more sensitive to costs in the current
                                                                                                                                                                                                                  that is tied up on the balance sheet and reinvest the funds
                                                perspective with a large volume of capital looking to be placed in the                     climate and many owner occupiers are increasingly looking at
                                                                                                                                                                                                                  back into their business or reduce debt. Increased corporate
                                                sector, particularly for prime grade assets in core locations.                             their property occupancy strategies to unlock value.
                                                                                                                                                                                                                  M&A activity has also fuelled transaction volumes as several
                                                In the nine months to Q3 2020, $3.57 billion ($10 million +) has traded                    Those corporate businesses who own their real estate assets            groups acquire businesses and then split out the real estate
                                                within the sector and compares to $3.38 billion at the same point                          can ensure the future viability of their business by potentially       components through a sale and leaseback arrangement. The
                                                in 2019. Unlike previous years where a large share of investment                           entering into a sale and leaseback arrangement and freeing up          late 2019 divestment of the Arnott’s portfolio highlights this – the
                                                volumes were derived from secondary grade assets, the bulk of assets                       their latent real estate assets. For this reason and coupled with      three assets were brought to the market by KKR following their
                                                to trade in 2020 have stemmed from prime offerings. To illustrate, the                     the strength of the industrial and logistics investment market, sale   acquisition of the Campbell Soup business.
                                                average deal size so far in 2020 has been $67.4 million, well above                        and leaseback transactions have been an integral factor within the
                                                the $30.7 million average recorded in 2019 and the five-year average                       investment market in 2020.
                                                of $33.0 million.
                                                                                                                                                                                                                         CORPORATE PROFILE.
                                                                                                                                           TOTAL SALES                          TOTAL SALES
                                                Two key themes have emerged in 2020 – flight to quality and sale and                       TO Q3 2019                           TO Q3 2020                               In 2020, sale and leaseback activity has stemmed from a diverse
                                                leaseback transactions. Shifting market dynamics has forced groups
                                                to reassess risk and chase security and as a result, prime assets with
                                                strong underlying covenants have been highly sought after. Similarly,
                                                                                                                                           $3.38B                               $3.57B                                   corporate profile. By volume, 35 per cent of sale and leaseback
                                                                                                                                                                                                                         assets to trade this year are from manufacturing-based businesses,
                                                                                                                                                                                                                         followed by retail trade (27 per cent), transport and logistics (15 per
                                                                                                                                                                                                                         cent) and pharmaceutical (11 per cent). The strong representation
                                                corporates who own their warehouses are increasingly taking
                                                                                                                                                                                                                         of manufacturing is varied and includes food, glass and packaging
                                                advantage of strong market fundamentals and the strength of the                                                                                                          related businesses. Major corporates to trade their industrial assets

                                                                                                                                                                                                                                                                                                   COLLIERS INTERNATIONAL
                                                industrial and logistics market via a sale and leaseback strategy and                                                                                                    include ALDI, DHL, Sigma Pharmaceutical, Telstra, Owens-Illinois
                                                subsequently, these types of transactions have dominated investment                                                                                                      Australia and Border Express.

                                                volumes within the sector in 2020.                                                                                                                                       The one constant in these transactions has been corporates taking

                                                                                                                                                                                                                         advantage of favourable pricing metrics and the overall strength of
                                                                                                                                                                                                                         the industrial and logistics market.

        11                                                       Introduction     |    Colliers Edge     |    Office      |   Retail   |     Industrial & Logistics      |    Hotels      |    NZ Overview        |   Transactions 2020                |      Authors & Teams
Australian Industrial & Logistics

                                                                                                                                                 VICTORIA                                                          QUEENSLAND
                                                Market Snapshot.
                                                                                                                                                 TOTAL SALES                      TOTAL SALES                      TOTAL SALES                        TOTAL SALES
                                                                                                                                                 TO Q4 2019                       TO Q3 2020                       TO Q4 2019                         TO Q3 2020
                                                2021 FORECAST

                                                The industrial and logistics investment market is expected to gather                             $1.08B                           $1.25B                           $1.56B                             $530.6M
                                                further momentum in 2021. At present, there is an estimated $26 billion
                                                in capital looking to invest in the sector. Given that just $3.57 billion has                    Almost $1.25 billion has traded across the Victorian industrial   Investment sale volumes in Queensland have fallen in 2020
                                                traded so far in 2020, it highlights the significant mismatch between                            market so far in 2020. Similar to the trends recorded in 2019,    with $530.6 million trading so far, compared to $1.56 billion
                                                supply and demand and the significant volume of unsatisfied capital                              fewer assets have been brought to market this year with           in 2019. Notwithstanding this, two assets above $100 million
                                                looking to be placed. As a result of this, we expect that additional assets                      16 assets trading so far in 2020, underpinned by Centuria’s       have traded this year in Brisbane - ALDI Brendale ($132.5
                                                will be brought to market in 2021 as groups look to capitalise on the                            acquisition of the Telstra data centre at Clayton for $416.7      million) and the remaining 50 per cent stake in the Coles cold
                                                continued strength of the industrial and logistics market.                                       million. However, with an average value of $77.8 million,         storage distribution centre at Parkinson ($152.5 million).
                                                                                                                                                 compared to $28.3 million in 2019, the bulk of transactions to
                                                                                                                                                                                                                   Yields have remained stable in 2020, however, there is
                                                                                                                                                 trade have been prime assets.
                                                PRIVATE   9.6%                                                                                                                                                     evidence of compression in selected submarkets. Notably this
                                                                                                                                                 Other major sales in Victoria included Aldi Dandenong South       includes the above mentioned Coles cold storage distribution
                                                OFFSHORE   8.1%                                                2020                              ($158.6 million), Ford Mickleham ($73.5 million) and 415          centre - The first 50 per cent stake was acquired by DWS in
                                                                                                             VOLUMES                             Cooper Street, Epping ($71.5 million). The confluence of few      mid-2019 on a yield of 5.63 per cent ($134.2 million) while
                                                                                                          BY PURCHASER                           assets for sale and significant levels of demand has led to       the remaining 50 per cent sold on a yield of 5.11 per cent
                                                                                                                                                 further compression in yields in 2020, albeit concentrated        ($152.5 million), reflecting 52 bps of compression over the
                                                INSTITUTIONAL    82.3%                                                                           within the prime market.                                          year.

                                                NEW SOUTH WALES                                                                                  WESTERN AUSTRALIA                                                 SOUTH AUSTRALIA
                                                TOTAL SALES                              TOTAL SALES                                             TOTAL SALES                      TOTAL SALES                      TOTAL SALES                        TOTAL SALES
                                                TO Q4 2019                               TO Q3 2020                                              TO Q4 2019                       TO Q3 2020                       TO Q4 2019                         TO Q3 2020

                                                $1.75B                                   $1.48B                                                  $105.4M $158.5M $324.1M $161.4M
                                                Investment volumes in the year to Q3 2020 across New South Wales                                 Just three assets above $10 million have traded so far            Four transactions above $10 million have been recorded
                                                totalled just under $1.48 billion across 17 assets, representing an average                      in 2020 with investment volumes for the period totalling          in South Australia this year, totalling $161.4 million, with an

                                                                                                                                                                                                                                                                                     COLLIERS INTERNATIONAL
                                                value of $87.0 million. Investment volumes so far in 2020 have accounted                         $158.5 million. However, this surpasses the level recorded        average deal size of $40.4 million. Two transactions have
                                                for 84 per cent of the levels recorded in 2019 where $1.75 billion traded.                       in 2019 where volumes totalled $105.4 million. Two major          been sale and leasebacks, totalling just over $80 million.
                                                                                                                                                 transactions were recorded and were Channel 7 West Perth,         The buyer profile has been dominated by institutions at
                                                Institutional investors remain heavily focussed on the Sydney market
                                                                                                                                                 Osborne Park ($75 million) and Stockland’s divestment of          89 per cent and includes Charter Hall and Primewest.
                                                and have acquired 88 per cent of assets to trade. Alternatively,
                                                                                                                                                 the Balcatta distribution centre - 22 Geddes & 20 Kenhelm
                                                corporates have represented 54 per cent of vendors by volume over                                                                                                  The largest asset to trade this year in South Australia was
                                                                                                                                                 Streets, Balcatta ($63.5 million) to Charter Hall.
                                                the period with almost $800 million trading via a sale and leaseback.                                                                                              the Rand Distribution Centre at Direk which sold to Moelis in
                                                Major sale and leasebacks in 2020 have included Aldi Minchinbury and                             Despite just three assets trading, demand remains elevated,       August for $63.05 million. The other trades include 617 - 625
                                                Prestons ($359.9 million collective total), Sigma’s distribution centre at                       evidenced by the sales campaign of the Balcatta distribution      Port Road, West Croydon ($59.1 million) which sold to Charter
                                                Kemps Creek ($133.6 million) and 37-39 Wentworth Street, Greenacre                               centre where there were eight bids received at the close of       Hall as part of the OIA portfolio and the sale and leaseback of
                                                ($100 million).                                                                                  round one and included institutional, offshore and private        the Border Express distribution centre at Salisbury South to
                                                                                                                                                 capital.                                                          Primewest ($22 million).
                                                Recent sales indicate yield compression for selected core markets.

     12                                                              Introduction    |    Colliers Edge      |    Office        |   Retail   |     Industrial & Logistics    |    Hotels     |   NZ Overview       |   Transactions 2020        |    Authors & Teams
Case Study.

                                                OUR EXPERTS TRANSACTED THE
                                                GREENACRE FACILITY TO DEXUS
                                                ON BEHALF OF OUR CLIENT REAL
                                                DAIRY AUSTRALIA.


                                                We worked with our client Real Dairy Australia
                                                to seek a means of unlocking capital from their
                                                facility in order to reinvest into their business.
                                                We sought to find a buyer who could met the
                                                pricing expectations for our client. The facility is
                                                located at 37-39 Wentworth Street, Greenacre,
                                                Western Sydney, a core infill logistics location.
                                                The state of the arts logistics property sets a
                                                new benchmark for cold store assets in Australia,
                                                across 19,246sqm of total building area.


                                                                                                         $100M                             STRATEGY                                                       RESULT

                                                                                                                                           We undertook a tightly controlled process that                 Our process saw Dexus transact on the long-WALE facility for
                                                                                                                                           would help achieve the best outcome for our                    $100 million, in the midst of the COVID-19 environment. This
                                                                                                         AT COLLIERS, WE
                                                                                                         MAXIMISE THE
                                                                                                                                           client. We had been working with institutional                 transaction marks the latest in a series of sale and leaseback
                                                                                                         POTENTIAL OF                      owner Dexus and knew cold storage was an                       transactions we have completed to the benefit of our clients. Recent
                                                                                                         PROPERTY TO
                                                                                                                                           asset class they had strong interest in. We                    sale and leaseback transactions have seen our National Industrial

                                                                                                                                                                                                                                                                                 COLLIERS INTERNATIONAL
                                                                                                         ACCELERATE THE
                                                                                                         SUCCESS OF OUR                    collaborated with our cold-store Valuations                    Capital Markets team act on behalf of groups including Toyota,
                                                                                                         CLIENTS. THIS
                                                                                                         TRANSACTION                       expert Catherine Allotta to help Dexus assess                  Visy, Lincraft, Border Express, Kaufland, Australia Post, Matrix
                                                                                                         ENSURED REAL DAIRY                their interest in the facility.                                Engineering and Qube.
                                                                                                         AUSTRALIA HAD
                                                                                                         MAXIMISED THEIR
                                                                                                         PROPERTY STRATEGY
                                                                                                         FOR THE LONG-TERM
                                                                                                         BENEFIT OF THEIR

      13                                                          Introduction      |    Colliers Edge    |    Office   |     Retail   |     Industrial & Logistics    |   Hotels     |     NZ Overview      |     Transactions 2020      |    Authors & Teams
Industrial & Logistics Outlook.

                                                The outlook for the industrial and logistics sector remains positive.
                                                While a drop in the level of population growth will create a drag
                                                on consumer consumption, this will be partly offset by significant
                                                levels of infrastructure investment and the exponential growth of
                                                e-commerce. More broadly, economic conditions are expected
                                                to improve in Q4 2020 and into 2021 which will further support
                                                spending patterns and industrial occupancy demand.

                                                While local institutions have dominated the investment market in
                                                2020, once the Australian borders open for business travel, we
                                                expect increased demand from offshore groups in both a direct
                                                and indirect capacity. Local institutions are expected to remain
                                                heavily focussed on the prime core market as they continue to
                                                place a large emphasis on covenant strength in the current period.
                                                Alternatively, secondary assets will remain heavily sought by
                                                privates and mid-tier funds looking for more opportunistic returns.

                                                With fewer assets being brought to the market compared to the
                                                past five years, investment in alternative subsectors including
                                                cold storage distribution centres and data centres will become
                                                more prevalent. Previously these niches of the market were often
                                                shunned by investors as they are highly specialised, however,
                                                institutions have come to better understand the fundamentals
                                                driving each sector.

                                                From a pricing perspective, prime yields are expected to largely
                                                remain at their current levels while there is likely to be some
                                                upward movement in the secondary market in some instances as
                                                risk becomes priced in surrounding covenant, asset and location.
                                                Yields for industrial and logistics assets will remain resistant

                                                                                                                                                                                                                                               COLLIERS INTERNATIONAL
                                                to upward movements given the strong investment flows into
                                                the sector and the favourable spread to the risk-free rate and
                                                cash rate.

     14                                                          Introduction      |   Colliers Edge      |    Office   |   Retail   |   Industrial & Logistics   |   Hotels   |   NZ Overview   |   Transactions 2020   |   Authors & Teams
Transaction Activity Halts.

                                                2020 has brought an abrupt halt to the bull run of transactions for
                                                the Australian hotel investment market. Transactions have declined
                                                markedly to total $406 million over the first nine months of the year
                                                                                                                                                                              2019                                          45 TRANSACTIONS                          2020                                     YTD
                                                                                                                                                                                                                                                                                                                        15 TRANSACTIONS                         2021
                                                and with expectations that annual volumes will total around $600                                                              TRANSACTION VOLUME                    AVERAGE TICKET SIZE                              TRANSACTION VOLUME                        AVERAGE TICKET SIZE                              LIKELY DOLLAR VALUE

                                                million, relative to the long-term average of $1.6 billion. This would
                                                represent the lowest annual transaction volume since 1999 and
                                                                                                                                                                              $2.0B                                 $44.5M                                           $405.6M $27.0M                                                                             $2.2B
                                                highlights the severity of the COVID-19 crisis for the Australian hotel
                                                investment market.                                                                                                              PRICE PER KEY                            NO. ROOMS SOLD                                PRICE PER KEY                                  NO. ROOMS SOLD                                        NO. ROOMS LIKELY TO SELL
                                                                                                                                                                                $334,315                                 5,606                                         $343,729                   2.8%                1,180                                                 7,000 PLUS
                                                To date the industry has worked together well to manage the impacts
                                                of the crisis; operators have treated employees with empathy
                                                                                                                                                 AUSTRALIAN HOTEL TRANSACTIONS 2000 TO Q3 2020
                                                and banks have shown restraint and a willingness to work with
                                                their clients to manage cashflows. Temporary changes to external
                                                administration procedures, as well as extension of the JobKeeper                                                                                                                                                                                                                                                                         Number of Transactions














                                                government subsidy scheme to March 2021 and changes to Hotel
                                                Industry General Award (HIGA) are also providing an additional level                                                           4,500                                                                                                                                                                       70                                Transaction Volume

                                                                                                                                                                                                                                                                                                                                                                NUMBER OF TRANSACTIONS
                                                                                                                                              TRANSACTION VOLUME (MILLIONS)
                                                of support to hotel owners. This is pushing asset sales into 2021 and                                                          4,000
                                                beyond.                                                                                                                        3,500
                                                Many of the transactions which have concluded in 2020 were launched
                                                prior to COVID-19 with few new campaigns having commenced since                                                                2,500

                                                lockdowns began in March. Deal flow has primarily comprised smaller                                                            2,000                                                                                                                                                                       30
                                                assets being acquired by private investors with only one transaction above                                                      1,500
                                                $100 million. The ticket size averaged just $27 million, a decline of 40                                                        1,000
                                                per cent compared to 2019, whilst the average price per key increased                                                            500

                                                marginally to $343K. Whilst partly reflecting the timing and composition
                                                                                                                                                                                   –                                                                                                                                                                       0
                                                of deals, it highlights how post-COVID hotel pricing remains largely
                                                untested in Australia. Sydney has been the most active investment market                                                                                                                                               SOURCE      Colliers International               NOTE    $5 million and above
                                                with three deals concluding including one site sale and more asset sales
                                                currently in play.

                                                                                                                                                                                                                                                                                                                                                                                                                  COLLIERS INTERNATIONAL
     15                                                           Introduction     |    Colliers Edge      |    Office       |   Retail   |                                   Industrial & Logistics                 |       Hotels               |          NZ Overview                   |          Transactions 2020                        |      Authors & Teams
OFFSHORE CAPITAL CONTINUES TO DOMINATE                                                           AUSTRALIAN HOTEL TRANSACTION 2000 TO Q3 2020 BY SOURCE OF CAPITAL

                                                Despite travel restrictions in place since February and hard border
                                                closures from the end of March, offshore capital remained active                                            $4,500

                                                accounting for 70 per cent of deal flow. Foreign buyers acquired the
                                                three highest value assets.                                                                                 $4,000

                                                The ongoing active role of foreign capital in Australia’s hotel                                             $3,500

                                                investment market will be crucial to underpinning valuations over the
                                                near term.

                                                Offshore groups have accounted for over half of the capital                                                 $2,500

                                                invested over the last 20 years and are playing a more active role
                                                in the development of new accommodation stock. The closure of
                                                international and state borders is restricting business as normal with a
                                                reluctance by foreign investors to commit capital without undertaking
                                                a physical inspection. This is being compounded by the slowing of
                                                FIRB approvals with thresholds reduced to zero.

                                                                                                                                                                              2010         2011         2012        2013         2014            2015       2016         2017        2018        2019       2020
                                                                                   UNKNOWN      INSTITUTION
                                                                                   4%           10%
                                                                                                                                                 Australia            China    Hong Kong       Japan   Singapore   UK      USA   Other

                                                                                                                                                 SOURCE        Colliers International

                                                                                                                        FUND                     Whilst Asian counter cyclical buyers have typically stepped in                              Valuations now place more emphasis on the 10-year discounted
                                                                                                                       11%                       during periods of crisis, the circumstances we are experiencing in                          cashflow approach and likely rate of return an investor will
                                                                          HOTEL TRANSACTIONS                                                     2020 are providing a unique window of opportunity for domestic                              require over this period, as well as the stabilised earnings or yield
                                                                             BY BUYER TYPE                           OWNER                       investors and offshore groups with an established team on the                               approach.
                                                                                                                                                 ground. All equity purchasers are also advantaged in the current

                                                                                                                                                                                                                                                                                                                     COLLIERS INTERNATIONAL
                                                                                                                       19%                                                                                                                   H1 2021 presents a confluence of factors against a weak demand
                                                                                                                                                 climate given the reticence from many domestic lenders to
                                                                                                                                                 provide debt to the hotel sector.                                                           backdrop with the proposed end of JobKeeper, cessation of the
                                                                                                                                                                                                                                             bank moratorium and deferral of insolvent trading provisions,
                                                                                                                                                 What has become clearer over the past few months is how the                                 reopening of closed hotels and opening of new supply, as well as
                                                                                                                                                 Australian hotel valuation community is treating the impacts of                             the commencement of the new Foreign Investment Review Board
                                                                                                                                                 Covid-19 and their approach to valuations given the range of                                (FIRB) regime in January 2021 – all of which will factor in any
                                                                                                                                                 methodologies upon which they rely.                                                         transaction.

                                                SOURCE    Colliers International

     16                                                                  Introduction   |    Colliers Edge    |   Office       |   Retail   |              Industrial & Logistics          |      Hotels       |   NZ Overview           |      Transactions 2020          |    Authors & Teams
VARIABILITY BETWEEN MARKETS HAS NARROWED                                                                         With room night demand largely limited to returning
                                                Trading Snapshot.

                                                                                                                                                                                                                                                                     quarantined travellers in the major centres and the domestic
                                                                                                                                                    Occupancy levels have generally exhibited a strong downward                                                      leisure segment, room rates across the ten markets have
                                                The global hotel and tourism sectors have been one of the most impacted by
                                                                                                                                                    trend throughout 2020 in response to lockdowns and                                                               also narrowed to range between $210 in Sydney and $114 in
                                                social distancing measures introduced by governments across the world in
                                                                                                                                                    restrictions on travel between states and territories.                                                           Darwin over the same period.
                                                response to COVID-19 with impacts widespread and indiscriminate across
                                                borders, cities and visitor segments.
                                                                                                                                                    Only four accommodation markets have recorded occupancy                                                          We expect this narrowing between accommodation markets
                                                The outlook for hotel trading across Australia continues to improve, though                         levels above 45 per cent over the first eight months of the                                                      to unwind throughout 2021 as demand conditions normalise
                                                demand is expected to come back in layers over the coming year. Australia’s                         year including Hobart (46.4 per cent), Melbourne (46.1 per                                                       which should create some excellent buying opportunities
                                                domestic leisure markets are expected to recover first as interstate border                         cent), Adelaide and Perth (both 45.1 per cent).                                                                  with a substantial uptick in stock being brought to market as
                                                restrictions are lifted with notable trading spikes during school holiday periods                                                                                                                                    government stimulus unwinds.
                                                boosting regional hotel markets. The establishment of a travel bubble between
                                                New Zealand and NSW/NT effective from October 2020, is also hoped to                                AUSTRALIAN HOTEL MARKETS – MONTHLY OCCUPANCY LEVELS TO AUGUST 2020
                                                provide a blueprint for the wider reopening of Australia’s international borders,
                                                providing an additional boost to hotels.
                                                                                                                                                    MAJOR CENTRES                                                                                                    SECONDARY CENTRES
                                                Domestic corporate travel is expected to be slower to recover but with
                                                growing momentum through the second half of 2021, helping to deliver much                                                 100                                                                                                              100

                                                                                                                                                 OCCUPANCY LEVEL (%)

                                                                                                                                                                                                                                                                  OCCUPANCY LEVEL (%)
                                                                                                                                                                           90                                                                                                               90
                                                needed demand into the CBD hotel markets. Expectations are for international                                               80                                                                                                               80

                                                tourism and MICE demand to commence recovering in 2022.                                                                    70
                                                                                                                                                                           50                                                                                                               50

                                                The opening of many new CBD hotels, originally slated for 2020, have been                                                  40
                                                pushed back which is likely to add additional downward pressure on trading                                                 20                                                                                                               20
                                                                                                                                                                           10                                                                                                               10
                                                over the first half of the year.                                                                                            0                                                                                                                0
                                                                                                                                                                                      SYDNEY      MELBOURNE             PERTH          BRISBANE    CANBERRA                                       GOLD COAST          CAIRNS              DARWIN          ADELAIDE   HOBART

                                                                                                                                                    Jan                         Feb       Mar   Apr    May        Jun      Jul   Aug                                 Jan                         Feb     Mar    Apr       May       Jun       Jul   Aug

                                                                                                                                                    SOURCE                      STR, Colliers International                                                          SOURCE                      STR, Colliers International

                                                                                                                                                    AUSTRALIAN HOTEL MARKETS – MONTHLY ROOM RATES TO AUGUST 2020

                                                                                                                                                    MAJOR CENTRES                                                                                                    SECONDARY CENTRES

                                                                                                                                                                                                                                                                                                                                                                               COLLIERS INTERNATIONAL
                                                                                                                                                                          300                                                                                                              300
                                                                                                                                                 AVERAGE DAILY RATE ($)

                                                                                                                                                                                                                                                                  AVERAGE DAILY RATE ($)
                                                                                                                                                                          250                                                                                                              250

                                                                                                                                                                          200                                                                                                              200

                                                                                                                                                                          150                                                                                                              150

                                                                                                                                                                          100                                                                                                              100

                                                                                                                                                                           50                                                                                                               50

                                                                                                                                                                            0                                                                                                                0
                                                                                                                                                                                      SYDNEY      MELBOURNE             PERTH          BRISBANE    CANBERRA                                        GOLD COAST         CAIRNS              DARWIN          ADELAIDE    HOBART

                                                                                                                                                    Jan                         Feb       Mar   Apr    May        Jun      Jul   Aug                                 Jan                         Feb     Mar    Apr       May       Jun       Jul   Aug

                                                                                                                                                    SOURCE                      STR, Colliers International                                                          SOURCE                      STR, Colliers International

      17                                                           Introduction      |    Colliers Edge       |    Office     |     Retail   |                            Industrial & Logistics              |     Hotels         |         NZ Overview      |                            Transactions 2020                    |     Authors & Teams
                                                Case Study.

                                                                                                                                                     Serious buyers remain active and whilst the number of physical               Colliers database of active hotel investors and online property
                                                ON MARKET CAMPAIGNS DRIVE STRONG INQUIRY
                                                                                                                                                     inspections may reduce, the quality of investors in the sense of             portals will continue to be the main way buyers browse, discover
                                                On market campaigns are driving strong inquiry against a backdrop of                                 readiness to buy remains strong. The buyer pool is also shifting             and shortlist properties, and now Colliers are offering enhanced
                                                historically low hotel transaction activity and a weight of capital waiting                          with new sources of capital looking at hotels for potential                  listings with interactive features to overcome the challenges
                                                to be deployed. Colliers has launched four on market campaigns post-                                 conversion including build-to-rent, co-living and student                    during these unprecedented times. Innovative marketing
                                                COVID with hotels being marketed for sale in New South Wales, Victoria                               accommodation, which reinforces the need to put the asset                    solutions include increased use of videos and virtual tours using
                                                and Tasmania. Inquiry level has been immense and with a strong level                                 on-market to ensure the opportunity is exposed to the broadest               360-degree cameras. Engaging with interactive digital marketing
                                                of engagement throughout and bidding at EOI close.                                                   buyer pool. New funds are also being raised actively targeting               tools can help replicate memorable service for remote audiences
                                                                                                                                                     the Australian hotel sector.                                                 who may be physically unable to inspect.
                                                                                                                                                     Offshore capital remains active despite the constraints, and                 Colliers Hotel transaction experts are in constant contact
                                                                                                                                                     while this may slow settlements due to the new FIRB approval                 with active buyers and have a good understanding of current
                                                                                                                                                     requirements, we are confident that FIRB will continue to                    investment mandates and will work with our national team to
                                                                                                                    ALTERNATE USE
                                                                                                                                                     support foreign investment into the hotel sector, as it has                  overcome the challenges of closed state borders to achieve
                                                                                                                                                     traditionally done.                                                          positive outcomes for our clients. The exchange of unconditional
                                                                               ON MARKET                                                                                                                                          contracts for the Rydges on Swanston during Victoria’s stage 4
                                                OWNER                          CAMPAIGNS
                                                                               BIDDERS BY                                                                                                                                         lockdown is testament to this.
                                                                              BUYER TYPE ($)

                                                                                                                                                     OFFSHORE                                          ON MARKET
                                                INVESTMENT                                                             DEVELOPER                                                                        SOURCE                    SOURCE   Colliers International
                                                                                                                                                                                                       OF BIDDING
                                                                                                                                                                                                       CAPITAL ($)

                                                2020 On Market Campaigns.

                                                     On average each
                                                     campaign resulted
                                                     in more than 220

                                                                                                                                                                                                                                                                                                       COLLIERS INTERNATIONAL
                                                     inquiries and over 40
                                                     Confidentiality Deeds
                                                     signed and 15 first
                                                     round bids providing
                                                     a depth of potential
                                                     purchasers to work
                                                                                               Radisson                                               Rydges                                                The Islington                                               The Sands
                                                                                               Hotel & Suites                                         on Swanston                                           South Hobart                                                Torquay
                                                     220             40                        LAUNCHED
                                                                                                          APRIL 202O
                                                                                                          PENDING FIRB
                                                                                                                                                                 APRIL 2020
                                                                                                                                                                 UNCONDITIONAL CONTRACT
                                                                                                                                                                                                                       AUGUST 2020
                                                                                                                                                                                                                                                                                   AUGUST 2020
                                                                                                                                                                                                                                                                                   UNDER INSTRUCTION
                                                                                                                                                                                                                       DUE DILIGENCE                                               BY RECEIVER

     18                                                           Introduction          |   Colliers Edge       |        Office     |   Retail   |     Industrial & Logistics      |      Hotels   |      NZ Overview         |        Transactions 2020            |    Authors & Teams
Australia is the midst of a hotel development cycle with more than         New market entrants have also played a greater role in the
                                                Hotel Market Outlook.

                                                                                                                                                  4,800 new rooms under construction and scheduled to open in                Australian hotel investment market over the past decade having
                                                With room night demand expected to come back in layers over the coming                            2020. Many of these openings have been pushed back with new                acquired an estimated $11 billion of hotel stock in the major
                                                years, investors (and lenders) are expected to place laser-sharp focus                            hotels unable to qualify for the JobKeeper subsidy.                        cities. Whilst some of these owners have gone on to build out
                                                on segmentation with geographic source of business and market mix                                                                                                            portfolios, others will be tested by their ability to withstand the
                                                                                                                                                  Newly developed hotel stock is expected to face greater                    current headwinds and an ability to right-size the operation to the
                                                becoming key factors tor annual business planning and underwriting future
                                                                                                                                                  headwinds with weaker demand through 2021. Some of these                   projected level of demand. Lender liability is a significant concern
                                                financial performance in hotel investments. The potential for a dramatically
                                                                                                                                                  hotels will struggle to gain share and stabilised trade is likely to       and one that becomes aggravated with a more actively operating
                                                altered domestic and international travelling public also has the potential to
                                                                                                                                                  be at a considerably lower level than the financial forecasts upon         business. A borrower that does not have experience in owning a
                                                skew many previously held assumptions.
                                                                                                                                                  which construction projects were predicated. Refinancing these             hotel and working with their operator during periods of economic
                                                The Millennial traveller (20-40 year olds) already made up over one third                         projects could prove challenging.                                          downturn can cause a lender concern given the potential impact
                                                of the world’s hotel guests and with predictions that this would exceed 50                                                                                                   on the hotel’s value.
                                                                                                                                                  Hotels within mixed-use projects - where the hotel brand has
                                                per cent by 2020. In a post-COVID world, millennial travellers are expected
                                                                                                                                                  been leveraged to position the property and assist with the sale           Whilst we foresee obvious challenges as we move into 2021,
                                                to represent an even higher proportion of the world’s hotel guests, as older
                                                                                                                                                  of residential apartments - are more likely to come to market              Australia’s management of the health crisis and size of the
                                                generations shun international travel, particularly to destinations which
                                                                                                                                                  as developers look to crystalize development profits. Higher               domestic tourism market will result in bringing opportunities for
                                                are perceived to be higher risk. The success of countries in containing
                                                                                                                                                  participation rates by non-bank lenders, particularly for more             medium to long term investors with an availability of stock past a
                                                the virus and the approach of governments to the establishment of green
                                                                                                                                                  marginal hotel development projects, may also add to the stress            development phase. Ongoing government support for what was
                                                lanes for travelers in the absence of a vaccine will also determine which
                                                                                                                                                  for some new hotels.                                                       once the nation’s second-biggest export industry, bringing in more
                                                nations resume international travel first and more importantly which are
                                                welcomed.                                                                                                                                                                    than $100 billion a year in spending, is also expected to set a
                                                                                                                                                                                                                             strong foundation for recovery.

                                                                                                                                                                                                                                                                                                    COLLIERS INTERNATIONAL
      19                                                           Introduction      |    Colliers Edge       |    Office        |   Retail   |     Industrial & Logistics      |    Hotels      |    NZ Overview        |      Transactions 2020         |    Authors & Teams
The RBNZ continues to keep monetary policy settings
                                                Introduction                                                                                   Overall Investor

                                                                                                                                                                                                                  accommodative and financial markets liquid, but there is an
                                                                                                                                               Market Conditions                                                  overall reluctance from major banks to write new business.
                                                                                                                                                                                                                  This uncertainty has increased the demand for debt advisory
                                                Despite some uncertainty and                                                                   The economic downturn created by the COVID-19 lockdowns            services, which are proving beneficial. We are also noticing a
                                                short-term disruption to market                                                                and the introduction of border restrictions has created            greater number of non-bank lenders, high net worth privates,
                                                conditions from COVID-19,                                                                      economic disruption that has reduced the current level of          domestic and institutional funds entering the market, albeit at
                                                low interest rates are fueling                                                                 commercial market activity.                                        a higher cost of capital.
                                                investment activity, especially
                                                for prime properties with strong                                                               However, investors are conscious that a rebound and                A recent Colliers International APAC research report noted
                                                covenants.                                                                                     resumption in more normal market conditions could eventuate        that the yield spread over ten-year government bonds in
                                                                                                                                               due to the forced short-term nature of the situation. As a         New Zealand was amongst the highest in the APAC region.
                                                The flight to quality and limited                                                              result, investors are turning their focus towards the solid        In addition, New Zealand’s approach to dealing with the virus
                                                stock available to purchase is likely                                                          market conditions leading up to COVID-19 and reviewing             has enhanced its international reputation as a safe haven
                                                to elevate the level of competition                                                            the fundamentals. Although not as strong, investors are            which is likely to spur greater overseas interest in local
                                                amongst experienced investors                                                                  postulating that the current uncertainty created by COVID-19       assets. In the short-term, the ability of overseas investors to
                                                driving values higher.                                                                         could be accommodated in many circumstances, especially if         transact will be tempered by border restrictions in place, and
                                                                                                                                               incorporating longer-term projections.                             likely for the remainder of 2020. A sharp lift in international
                                                                                                                                                                                                                  activity is anticipated once restrictions are lifted, prior to this
                                                                                                                                               While we are seeing vacancy rates lift from 20-year record
                                                                                                                                                                                                                  however, domestic players look likely to take the opportunity
                                                                                                                                               lows, the secondary sector is facing more challenging
                                                                                                                                                                                                                  to fill the gap.
                                                                                                                                               market conditions than in the prime sector, as occupiers and
                                                                                                                                               investors pursue quality premises.

                                                                                                                                               Despite some uncertainty and understandable cautiousness,
                                                                                                                                                                                                                         A LACK OF ALTERNATIVE OPTIONS TO GENERATE
                                                                                                                                               investors are spurred on by low interest rates, which will                RETURNS WILL KEEP INVESTMENT ACTIVITY HIGH.
                                                                                                                                               continue to remain low (and may reduce further) for an                    However, competition for a short supply of prime assets available
                                                                                                                                               extended period under current forecasts.                                  to purchase will remain a challenge.
                                                                                                                                                                                                                         This could lead to a return of FOMO for investors. If this
                                                                                        The economic downturn created by                                                                                                 eventuates, it is likely to push yields lower and capital values
                                                                                        the COVID-19 lockdowns and the                                                                                                   higher for quality stock with positive attributes.
                                                                                        introduction of border restrictions
                                                                                        has created economic disruption.

                                                                                                                                                                                                                                                                                             COLLIERS INTERNATIONAL
                                                NZ Overview.
 20                                                               Introduction     |    Colliers Edge         |     Office    |   Retail   |     Industrial & Logistics   |   Hotels    |    NZ Overview      |      Transactions 2020                |     Authors & Teams
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