Published on 18/03/2016 by Punchmedia

Consumers Spend $1 Billion in Shopping Centres in 2015

Australia's top shopping centres attracted even more of the consumer dollar in 2015, with many of the largest centres increasing their turnover by 5 per cent or more. Once again the top centre was Chadstone in Melbourne, jointly owned by the Gandel Group and Vicinity Centres, which, even with more development work under way, still enjoyed more than $1.4 billion in retail spending, according to the annual Big Guns survey from Shopping Centre News. Michael Lloyd, SCN's publisher, said that Chadstone first broke the $1 billion turnover mark in 2008, and with Westfield Sydney and Westfield Bondi Junction also topping $1 billion in sales in 2015, he expects the top 10 centres in Australia to exceed the $1 billion turnover by 2020. All but one of the top 20 centres delivered an increased turnover, with the exception, Westfield Warringah Mall, undergoing redevelopment. The Shopping Centre Operators industry owns and oversees the management of shopping centre retail space in Australia. The industry’s properties are home to the full gamut of retailers, from luxury boutiques in CBD shopping centres, to major supermarket chains that anchor neighbourhood shopping centres. Regional and sub-regional centres sit in the middle, often featuring department and discount department stores. The industry’s revenue is derived from rent charged to retail tenants in the properties owned by industry participants, most of which manage and own centres. Over the five years through 2015-16, industry revenue is forecast to increase by an annualised 1.6%, a slow performance that reflects the difficulty operators have had in increasing rents. In the current year, industry growth is expected to pick up speed as retail spending strengthens, rising at an estimated 2.3%, to $7.8 billion.

Profitability

Growth in profitability has been constrained by the subdued sales by tenants in the consumer goods retailing segment, which has limited the capacity of centre operators to pass on rent increases. Industry operating profit is estimated to have grown at a slower pace than revenue over the five years through 2015-16, rising by a projected annualised 1.2% to account for 33.3% of industry revenue. Industry employment is forecast to climb by an annualised 1.1% over the five years, rising to an estimated 8,800 people in 1,360 establishments. This employment growth, along with increased real wage rates, underpinned a projected annualised rise in total wage costs of 1.6% over the period, helping contain the growth in profitability. Several of the leading property trusts have significantly restructured their operations in recent years to strengthen their portfolio of high performing assets and have divested non-core of poorly performing assets (e.g. GPT Group). Westfield Group merged its retail trust assets and its property management operations into the Scentre Group in June 2014. Novion Property group and Federation Centres, merged their retail property operations in June 2015 in order to strengthen the diversity and scale of their portfolios and yield cost savings.

Trading Conditions

The industry’s performance is closely entwined with the performance of its major markets, with industry revenue typically reacting at a lag to shifts in retail demand. The strength of demand for the products and services of tenants is a major factor in how aggressively retailers can push rent increases under existing contracts. Tight retail rental markets also promote the development of capacity in the industry, which is a further factor in revenue growth. The low growth observed in the industry over the past five years is a result of this relationship. The global financial crisis had a large effect on consumer behaviour in Australia, resulting in dramatic increases in the savings rate as consumers choose to pay down debt. Technology adoption coincided with the return to saving by consumers, with the consequence that retailers had to compete even harder for a share of declining expenditure. To make matters worse for bricks-and-mortar retailers, Australians have embraced online shopping over the past five years, taking advantage of better internet connections and a strong dollar through to 2013. This has been to the detriment of local retailers and industry operators. Shopping centres, like their major clients, department stores, have traditionally competed with other retail locations, like shopping strips, on their ability to provide a range of goods in one location. Online shopping presents a direct threat to the industry through the reduction in foot traffic. Operators have addressed this threat by changing their tenancy mix to include a greater range of services, food choices and entertainment options, a strategy that is expected to be continued in the next five years

International Interest

In terms of operating centres, the industry has two main functions: the management of centres themselves (including regular refurbishments to retain their profile) and the management of the use of space within them. The mix of potential capital gains and the steady nature of rental income is attractive to a range of investors. Industry participants operate under a number of structures, such as listed real estate investment trusts, unlisted trusts and equity backed vehicles. The role of equity in the industry has increased in the past five years, as international investment funds swooped on distressed assets following the global financial crisis. At the heart of the global financial crisis was a global tightening of credit conditions, resulting in higher interest rates. Several industry participants, most notably the former Centro Property Group, were highly leveraged leading into 2008-09. With ongoing rental income, players were able to service larger loans at existing rates. Many faltered during 2008-09 and 2009-10, as they were unable to rollover the debt at comparable rates, leading to asset sales. Buyers included domestic firms and international investors, including pension, private equity and sovereign investment funds. While domestic retailers have struggled over the past five years, the Australian economy as a whole has outperformed most other developed countries. Solid economic growth, a growing population (largely through immigration and a stable birthrate), and robust governance have all made Australian assets attractive to overseas investors. With additional investment attention, the industry has continued to expand in terms of establishments, with employment increasing in line with new entrants. This new flow of investment into the industry is expected to help boost industry revenue over the next five years, as new owners have been prepared to fund renovations, especially at sought-after super-regional, regional and CBD centres.

punchmedia

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

Author profile

Related articles

Confidentiality Agreement - What is it and why do i have to sign one....

09/07/2014 by Catherine

Confidentiality Agreements If you have spent any time in the investment or business world then chances are you have come across a Confidentiality Agreement, sometimes also referred to as an NDA or non-disclosure agreement. What is a Confidentiality Agreement? A Confidentiality Agreement is a written contract between two or more parties who are entering into a business relationship where confidential information will be shar...