whitepaper-shopping-centres-an-inconvenient-truth-2019-peter-buckingha

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Should retail rent increases be based on the 🏬 shopping centres' πŸ“ˆ sales performance? Did you know that shopping centres are still trying to increase πŸ’² retail rents when their actual sales performance is not improving at the same rate? We have used Property Council of Australia Data to analyze shopping centres' performance in this revised πŸ“– whitepaper from 2017 to 2019.

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Shopping Centres still an Inconvenient Truth Revisited In 2019 1 Shopping Centres still an Inconvenient Truth Revisited In 2019 Shopping Centres sàgll an Inconvenient Truth Revisited In 2019 By Peter Buckingham CFE CMC Managing Director – Spectrum Analysis By Peter Buckingham CFE CMC Managing Director – Spectrum Analysis Shopping Centres - still an Inconvenient Truth Revisited In 2019 By Peter Buckingham CFE CMC Managing Director – Spectrum Analysis

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 2 2019 shows the state of shopping centres across Australia to be deteriorating in performances against inflation – yet rents are expected to increase at much higher rates. In 2017 we undertook a study of shopping centres and showed that although rents were increasing at around CPI plus 2 – 3 which equated to around 4 – 5 shopping centres were not growing at the same pace. ➒ Revisit Our White Paper ver. 2017 How do shopping centre owners still press for increases in rents of 4 or 5 pa. when the increase in the / sq m. sold through the Centres has been increasing in the range of -0.63 to 0.25 for Super Major and Regional shopping centres over the last 2 years We have revisited the Property Council Shopping Centre data in 2019 and find things are far worse. Using data provided by The Property Council and originally sourced from the Shopping Centre owners the logic for these increases is not substantiated. The Property Council data To talk in quantitative terms the main source of data used by the retail industry is compiled and sold by The Property Council of Australia called Shopping Centres Online. This use to come as state based books but now you can purchase a national electronic version which we participate in. β€œHow do shopping centre owners press for increases in rents of 4 or 5 p.a. when the increase in the / sq m. sold through the Centres has been increasing in the range of 0.5 – 1.65 p.a. over the last few years” – Peter Buckingham Managing Director at Spectrum Analysis Over the last 2 years the group of the biggest shopping centres – 14 Super Regional shopping centres have: β€’ Increased their GLAR size in m 2 by 3.57 pa. β€’ Increased their MAT’s turnover by 3.86. β€’ Increased their pedestrian traffic by 2.85. β€’ Increased their MAT / GLAR by only 0.26 pa. With rents being pushed up at 4 – 5 pa their average /m 2 is only rising at 0.26 and we wonder why there is trouble in retail

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 3 We cannot validate the accuracy of the Property Council data as it is their responsibility to collect this data normally from the shopping centre owners however I do feel we should be able to trust this data and therefore look at the changes over time and what does that tell us The Property Council do take their responsibility seriously in this area and have advised they exclude shopping centres if they do not want to participate or there are major works underway possibly making the data incorrect. We have the following data which we have used in our analysis: β€’ Shopping Centre directories online 2019 β€’ Shopping Centre directories online 2017 β€’ Shopping Centre directories online 2012 β€’ Shopping Centre Directories hard copy books dated 2011 Vic / Tas NSW / ACT Queensland. β€’ Specific older pages from Shopping Centre directory book 2006 for The Glen and Forest Hill Chase. Before reading the next section please understand the following data descriptions: β€’ GLAR – Gross Lettable Area Retail – how many square meters m 2 of space are rented for retail β€’ MAT – Moving Annual Turnover for a 12 month period – measured in β€’ Pedestrian Estimate – total pedestrians as counted by door counters and the like. β€’ MAT / GLAR – gives a /m 2 comparison. If the Shopping Centre owners feel they are being misrepresented using a single figure for MAT for their Shopping Centre maybe they should submit the MAT broken down to specific segments for the Property Council to include in their data. This could be breaking it down into Supermarkets Specialty Sales and other segments to assist in understanding the changing sales dynamics of the Centres. Classifications We have looked at the shopping centres in Australia and made some calculations based on the Property Council Data we have for Shopping Centres 2019 2017 and 2012. There are some issues that some shopping centres do not provide data and many smaller centres seem to have data that is missing or unreal. We have removed centres that do not provide what we defined as satisfactory data. In the following work we needed to create a reasonable sample size to represent each of the Classifications: β€’ Super Regional β€’ Major Regional β€’ Regional β€’ Sub Regional β€’ Neighbourhood β€’ City Centre The results gave us the following sample sizes: Shopping Centre Type Sample Number of Centres Super Regional 14 Major Regional 27 Regional 28 Sub Regional 83 Neighbourhood 46 City Centre 18

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 4 Whilst there are some minor issues to do with how many department stores discount department stores and supermarkets are present the basic breakdown is done by the GLAR. I have included these in the following table of our sample and also computed some averages to represent each classification. Knox-city-food-court HongKong Retail

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 5 Year GLAR Classifications Av Total- Centre- GLAR Av MAT Av Pedestrian- Estimate Av MAT / GLAR Sample Size – Examples Super Regional 2017 85000 m 2 108401 796296905 16025658 7346 15 - Biggest SC’s in Oz Bondi Junction Doncaster Marion Carindale Chadstone 2019 85000 m 2 116151 857703745 16939308 14 only reported pedestrians 7384 Same 15 in MAT / GLAR - Biggest SC’s in Oz Bondi Junction Doncaster Marion Carindale Chadstone Annual Increase over 2 years 3.57 3.86 2.85 0.26 Major Regional 2017 50000 – 85000 m 2 64699 452696213 10843145 6997 30 - Kotara Forest Hill Chase Belconnen Chatswood Dandenong Penrith 2019 50000 – 85000 m 2 66849 461837564 11304901 6909 27 of the original 30 Kotara Forest Hill Chase Belconnen Chatswood Dandenong Penrith 3 stopped reporting MAT Annual Increase over 2 years 50000 – 85000 m 2 1.66 1.01 2.13 -0.63 Regional 2017 30000 – 50000 m 2 40185 271492760 6986128 6756 29 - Greensborough Plaza Innaloo Australia Fair Helensvale 2019 30000 – 50000 m 2 43501 295382708 7176789 6790 Same 29 excluding Grand Central Toowoomba no longer reporting MAT Annual Increase over 2 years 4.13 4.40 1.36 0.25 Sub Regional 2017 10000 – 30000 m 2 18380 129008168 4474171 7019 90 - The Pines Malvern Central Traralgon Hollywood Rosebud Plaza SC 2019 10000 – 30000 m 2 18482 142196785 3991995 7694 All 90 sites identified. 7 did not report MAT. These were Burwood Plaza City Centre Plaza Clifford Gardens Shopping Centre Fairfield Forum Stockland Baulkham Hills Sunbury Square Shopping Centre Wagga Wagga Marketplace Annual Increase over 2 years 0.28 5.11 -5.39 4.81

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 6 Year GLAR Classifications Av Total- Centre- GLAR Av MAT Av Pedestrian- Estimate Av MAT / GLAR Sample Size – Examples Neighbour -hood 2017 10000 m 2 6573 57963008 2315884 8818 53 - Normally a Coles or Wooly’s supermarket and a few specialty stores 2019 10000 m 2 6618 60918910 2385099 9049 52 - Normally a Coles or Wooly’s supermarket and a few specialty stores. Only one missing is Sunland Plaza 6 had to be removed as no longer reported MAT: Glenmore Park Town CentreJunction Fair Lakeside Shopping Centre Rutherford Shopping Centre Taylors Lakes Shopping Centre Village Central Wyong Annual Increase over 2 years 0.34 2.55 1.49 1.31 City Centre 2017 In the CBD 13388 105922624 12573324 1 7912 18 - Queen Victoria Building Melbourne Central Myer Centre Strand Arcade 2019 13498 127646299 14020433 9456 Annual Increase over 2 years 0.41 10.25 5.75 9.76 Note: Data derived from Property Council Shopping Centre data 2017 and 2019 to which Spectrum Analysis subscribes. 1 Note some of these like Melbourne Central Greenwood Plaza and Queen Victoria Building have huge pedestrian numbers 30 M + mainly due to railway stations.

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 7 The point is that the Super Regional Major Regional and Regional shopping centres are increasing far less than the rental increases that are being forced upon the tenants. Neighbourhood centres look good in this format but that is because the largest tenant by far is normally the major supermarket and that does sell well in terms of /m 2 compared to many of the specialty stores surrounding it. However the neighbourhood centres are normally originally built based on a long term anchor tenant the supermarkets and their long term rentals and rental increases are far more favourable than the Specialty stores who are hammered every 5 years as a new lease is offered. Longitudinal study over a 7 year period As now we have the Property Council data from 2012 2017 and 2019 we can compare the changes in MAT / GLAR for each Classification over the 5 year and subsequent 2 year period on our samples described above: Year Type Total Centre GLAR sqm MAT Pedestrian Estimate MAT / GLAR increase over 2012-2017 2017- 2019 MAT/GLAR increase p.a. MAT/GLAR 2012 Super Regional 104839 716104715 15723977 6831 - - 2017 108401 796296905 16025658 7346 7.54 1.51 2019 116151 857703745 16939308 7384 0.52 0.26 2012 Major Regional 64556 417542432 10601489 6468 - - 2017 64699 452696213 10843145 6997 8.18 1.64 2019 66849 461837564 11304901 6909 -1.26 -0.63 2012 Regional 41035 257040711 6860908 6264 - - 2017 40185 271492760 6986128 6756 7.85 1.57 2019 43501 295382708 7176789 6790 0.50 0.25 2012 Sub Regional 18224 122096273 4232450 6700 - - 2017 18380 129008168 4474171 7019 4.76 0.95 2019 18482 142196785 3991995 7694 9.62 4.81 2012 Neighbourhood 6488 52902224 3019514 8153 - - 2017 6573 57963008 2315884 8818 8.16 1.63 2019 6618 60918910 2385099 9049 2.62 1.31 2012 City Centre 13524 104348228 11890474 7716 - - 2017 13388 105922624 12573324 7912 2.54 0.51 2019 13498 127646299 14020433 9456 19.51 9.76

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 8 The Property Council release data on a rotational basis for each state and each shopping centre has a date the data was verified. This could result in some minor adjustment if deemed necessary. Longitudinal Study Summary: Even using a statistically strong sample for each group of shopping centres the 3 larger classifications Super Regional Major Regional and Regional show very poor growth in terms of /m 2 between -0.63 to 0.25 p.a. Sub Regional shopping centres are showing growth but their average pedestrian throughput is significantly down. Neighbourhood centres are showing only 1.31 pa growth and the City Centre shopping centres are statistically showing good growth however after a very poor performance 2012 - 2017. Breakdown by Super Regional Shopping Centres 2017 and 2019 When you look at the Super Regional shopping centres across Australia for your Retail Location Planning you see the following: This makes it very hard to achieve rental increases of between 4 and 5 p.a.

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 9 Centre Name Year Total-Centre- GLAR MAT Pedestrian-Estimate MAT / GLAR increase in 2 years MAT / GLAR Chadstone Shopping Centre 2017 130366 1444581126 17600748 11081 -17.73 2019 212899 1940861793 22358368 9116 Westfield Bondi Junction 2017 96609 1043800000 20600000 10804 8.81 2019 97420 1145300000 20800000 11756 Westfield Doncaster 2017 112018 961900000 15971000 8587 -1.96 2019 111339 937400000 15439000 8419 Westfield Chermside 2017 106674 869700000 15420000 8153 -13.34 2019 131640 930000000 16356000 7065 Robina Town Centre 2017 105868 852000000 13800000 8048 - 2019 112909 No data provided No data provided No data provided Westfield Carindale 2017 122495 914600000 15450000 7466 -1.38 2019 121724 896300000 14574000 7363 Westfield Hornsby 2017 88812 644400000 17000000 7256 0.33 2019 90300 657400000 17500000 7280 Westfield Southland 2017 119705 852400000 15260000 7121 -3.15 2019 119508 824200000 14635000 6897 Westfield Marion 2017 117239 809000000 14200000 6900 4.17 2019 116772 839300000 13500000 7188 Westfield Miranda 2017 117703 812200000 14800000 6900 18.64 2019 116351 952500000 15700000 8186 Highpoint Shopping Centre 2017 133451 893400000 16200000 6695 19.75 2019 125851 1008900000 16100000 8017 Westfield Fountain Gate 2017 148726 990200000 15774000 6658 4.69 2019 148581 1035600000 15627000 6970 Westfield Parramatta 2017 120355 771600000 29500000 6411 11.04 2019 119198 848600000 32600000 7119 Westfield Knox 2017 111131 700400000 14554000 6302 -2.71 2019 110463 677300000 14307000 6131

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 10 Centre Name Year Total-Centre- GLAR MAT Pedestrian-Estimate MAT / GLAR increase in 2 years Westfield Warringah Mall 2017 113039 668200000 10900000 5911 5.68 2019 115776 723300000 12000000 6247 Westfield Tea Tree 2017 89514 512500000 10600000 5725 -1.10 2019 92145 521700000 10700000 5662 Northland Shopping Centre 2017 92983 528994579 16680946 5689 -1.28 2019 97770 549110898 16680946 5616 Bayside Shopping Centre 2017 87365 410177870 11848176 4695 1.11 2019 88965 422283489 - 4747 Eastland Shopping Centre 2017 102422 407000000 9800000 3974 - 2019 109802 - - - Westfield Garden City 2017 128749 503000000 13460000 3907 60.71 2019 125911 790600000 17078000 6279 Castle Towers Shopping Centre 2017 - - - - - 2019 101438 727000000 18900000 7167 Indooroopilly Shopping Centre 2017 - - - - - 2019 103798 647309392 11745531 6236 Macquarie Centre 2017 - - - - - 2019 119316 839931913 17646834 7040 Pacific Fair Shopping Centre 2017 - - - - - 2019 139532 - - - Pacific Werribee 2017 - - - - - 2019 102405 536000000 11500000 5234 Westfield North Lakes 2017 - - - - - 2019 106276 650800000 12129000 6124 Note: Data from Property Council Shopping Centre data 2017 and 2019 to which Spectrum Analysis subscribes β€œ-β€œ means No data provided Some like Bondi Junction and Marion appear to have improved and others like Knox and Northland appear to have deteriorated. This does need individual explanations if you are looking at individual centres as for example Chadstone has increased its GLAR by about 80000m 2 and will take some time to settle back down and Highpoint appears to have become smaller by 8000m 2

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 11 The following Super Regionals were not included in the bulk analysis 14 locations as there is missing or incorrect data in one of the time periods: β€’ Bayside β€’ Robina Town Centre β€’ Pacific Fair β€’ Eastland β€’ Castle Hill 2017 β€’ Macquarie Centre 2017 The variation must bring some concern to retailers as whilst I am sure there will be stories about the different segments of the market these are the total reported GLAR and MAT figures according to the Property Council data for each Shopping Centre. Summary The growth of our shopping centres across Australia make it very hard for Shopping Centre owners to justify large rentals well above CPI when the shopping centres are performing poorly measured by the industry standards. There are facts and data relating to most shopping centres in Australia and if you have to negotiate a new lease or a lease renewal it would be very prudent to have the facts relating to the shopping centre readily available. Whilst the shopping centre owners may question some of the numbers in the Property Council data it must be pointed out that it was provided by them or their predecessors hopefully in good faith in the past and we are just comparing the data at different points in time. Finally – Use Data to make better business decisions. May be in the future – Food Hall Berlin style Roseland Shopping Centre

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Shopping Centres - still an Inconvenient Truth Revisited In 2019 12 Doncaster Shopping Centre Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd a Geodemographic statistical and Retail Location Planning consultancy. Peter is the Go To person as to where to open new stores in Australia. Peter is both a Certified Franchise Executive CFE and a Certified Management Consultant CMC. To contact Peter email peterbspectrumanalysis.com.au or visit www.spectrumanalysis.com.au

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