Australian Shopping Centre Investment Review & Outlook

Transcription

1 February 2015 Australian Shopping Centre Investment Review & Outlook Volume reaches a record level for the third consecutive year, led by sub-regional and neighbourhood investment activity

2 Enjoy JLL s premier annual research report Australian Shopping Centre Investment Review and Outlook on your tablet Download JLL s Capital Markets app now >

3 Contents highlights 05 Executive summary 06 Review of 2014 investment activity 20 Major transactions Macroeconomic environment 26 Retail spending trends 28 Retail property market fundamentals 30 Retail investment market outlook retail transactions Published 30 January 2015

4 2014 Highlights VOLUMES REACHED $7.5 BILLION THIRD CONSECUTIVE $7.5Billion RECORD YEAR 194 TRANSACTIONS HIGHEST EVER ACCELERATION 43 $40 MILLION Million AVERAGE DEAL SIZE FELL 28% TO IN YIELD COMPRESSION CYCLE 43 BASIS POINTS ON AVERAGE

5 EXECUTIVE SUMMARY Retail investment activity reached AUD 7.5 billion in 2014, breaching the AUD 7.4 billion in 2013, an all-time record high for the third consecutive calendar year. A few large transactions, combined with a significant upswing in smaller transactions, drove volumes to record-breaking levels. The major theme has been the sale of sub-regional centres. Competing views on the outlook for this sub-sector contributed to the high level of buyer and vendor engagement. Some owners took the opportunity afforded by high levels of market liquidity to reduce exposure to some assets considered to be non-core to their investment strategies. Conversely, unlisted wholesale funds and a range of boutique unlisted funds and syndicators have taken the opportunity to increase exposure to the sub-sector. There was a significant upswing in the number of smaller transactions in As a result, the average transaction size fell by 28% in 2014 to AUD 40 million. There has also been a large increase in the level of activity within the AUD 50 to AUD 150 million range, with all buyer groups actively pursuing opportunities within this price bracket. This contrasts to 2012 and 2013 when there was greater availability of major assets and portfolios of significant scale and demand was concentrated on large dominant assets valued at greater than AUD 200 million. Greater appetite for risk was evident in 2014 and that was reflected in more competitive pricing and in the type of assets that transacted in Demand for development assets was firm and characterised many of the non-traditional retail subsectors that transacted throughout the year. Competition for assets intensified in 2014, driving significant yield compression. It marked the first year where significant compression occurred on a broad-based basis since Growing investor confidence drove a tightening of yields across all of the retail sub-sectors and right across the risk spectrum. As a result, some of the wide yield spreads between sub-sectors, and yield ranges for certain sub-sectors, have now begun to contract was a year of significant asset accumulation for unlisted funds. Unlisted funds have been the most active buyer group for the past three years, including major unlisted wholesale funds and smaller boutique investment funds. Having raised a significant volume of equity in 2014, a range of unlisted wholesale funds will be looking to invest capital in The challenge will be finding the right opportunities via both acquisition, and development channels. REITs continued to selectively acquire assets and the pace of divestments has slowed since 2012, but on a net basis, REITs are still net sellers of retail property for the third successive year (AUD -254 million). Risk aversion is likely to continue to moderate in 2015 and investment mandates are likely to become less rigid, with a greater willingness to take on assets with risks attached, supported by the rebound in retail spending growth that emerged through As the weight of capital seeking exposure to retail assets continues to expand via ongoing demand from offshore investors and domestic institutions, market conditions are likely to remain highly competitive through We expect this to drive further compression in yields in 2015, but to a lesser extent than in 2014 given the current level of yields relative to historical levels. Figure 1: Total retail transactions 8,000 7,000 6,000 AUD Millions ,000 4,000 3,000 2,000 1, Source: JLL Research Q1 Q2 Q3 Q4 Number of transactions (RHS) Australian Shopping Centre Investment Review and Outlook February

6 REVIEW OF 2014 INVESTMENT ACTIVITY Brickworks Marketplace, SA - transacted by JLL on behalf of Fabcot (Woolworths) to Charter Hall for approximately AUD 75 million Transaction volumes gathered significant momentum throughout the year, having started the first half of the year with relatively subdued investment activity as shown in Figure 1. The number of transactions rose significantly to 194 in 2014 from 133 in This represents the largest number of retail transactions ever recorded, well above the decade average of 113. Product Three distinct trends in the type of product sold throughout 2014 can be identified. Firstly, a surge in sub-regional transactions was evident throughout the year, with volumes surpassing the 2013 record; this was by far the most prominent theme for the year. Secondly, the notable increase in the number of large nontraditional format centres such as outlet centres, mixed use assets with significant retail components and development assets (either under development or with development potential) that transacted. Finally, neighbourhood investment activity reached a record high in the number and volume of transactions in Sub-regional investment activity reached an exceptionally high level in 2014 at AUD 2.5 billion, eclipsing the already high 2013 levels (AUD 2.3 billion), equivalent to more than two and half times the 10-year long term average. The number of sub-regional transactions* was relatively stable at 22 in 2014, consistent with the 25 recorded in Figure 2: Transactions by sub-sector 3,500 AUD Million 3,000 2,500 2,000 1,500 1, Sub-regional Neighbourhood Regional CBD Bulky Goods Other Source: JLL Research 6 Australian Shopping Centre Investment Review and Outlook February 2015

7 Investors continued to be attracted to the high, albeit firming yields available in the sub-regional market relative to other retail formats. In addition, greater risk appetite among investors has led to an increase in the number of non-core sub-regional centres transacting. Investors continue to pursue this cohort of the subregional market due to the opportunity to enhance returns by redevelopment or through more intensive leasing and asset management programs. A recovery in retail spending and market fundamentals has supported investor confidence and partly contributed to yield tightening in the sub-regional market. The improvement in specialty store moving annual turnover (MAT) has increased the likelihood of a short-term rebound in market rental growth, which seems to be getting priced in as yields compress. The fund recapitalisation of the Lend Lease Real Estate Partners 3 (LLREP3) portfolio which comprised five sub-regional centres, contributed in excess of AUD 600 million to the 2014 total. It was the largest retail offering to be marketed throughout the year and demonstrated a clear shift in yield benchmarks for this sub-sector. A range of other sub-regional transactions in Q2 and Q3 of 2014 also provided evidence of a notable level of yield tightening to confirm the shift downward. While unlisted funds dominated the acquisitions of sub-regional centres, private investors and A-REITs were the most common sellers. The process of restructuring portfolios, particularly among listed groups, continued to be a major driver of asset sales throughout the year as non-core assets were gradually divested. There was also a high volume of non-traditional retail assets sold in 2014, ranging from outlet centres to mixed-use assets to redevelopment assets, with a large majority of these transactions concentrated in the Sydney market. Clearly, stronger demand for value-add and opportunistic style assets has emerged, particularly as there have been fewer opportunities to acquire larger assets within the core formats. Some of the key examples include: a 50% interest in Greenwood Plaza (AUD million including the office component)**, Birkenhead Point (AUD 310 million), The Entertainment Quarter (AUD 80 million), Norwest Marketown (AUD 120 million) and Lidcombe Power Centre which was acquired, for AUD 52 million, to be redeveloped into The Marketplace Auburn. The other category, which also includes various types of non-traditional retail formats and free-standing supermarkets, accounted for AUD 1.2 billion worth of transaction activity in 2014, up significantly from just AUD 522 million in The increase is largely reflective of a reduction in risk aversion evident throughout the year. Non-traditional retail format sales Outlet Centres Mixed-use Developments Birkenhead Point (hybrid outlet), NSW Entertainment Quarter, NSW Lidcombe Power Centre, NSW DFO South Wharf, Vic (25%) Greenwood Plaza, NSW (50%) Burwood Plaza, NSW Harbour Town Docklands, Vic Piccadilly Centre, NSW (50%) Norwest Marketown, NSW Brickworks Marketplace, SA * each portfolio represents one transaction ** gross figure, the purchaser is responsible for approximately $3.5 million (50% basis) of outstanding incentives Australian Shopping Centre Investment Review and Outlook February

8 Menai Marketplace, NSW - transacted by JLL & Macquarie as part of LLREP3 fund recapitalisation which comprised five assets for in excess of AUD 600 Neighbourhood volumes reached a record AUD 1.9 billion in 2014, up 49% from AUD 1.3 billion in was also heavily boosted by the AUD 400 million sale of a 75% share in a portfolio of 18 neighbourhood centres and one sub-regional centre by the Coles Group. The largest transaction in the neighbourhood sector in 2014 was a portfolio of five centres sold by Woolworths to the Sim Lian Group for a reported value of approximately AUD 133 million. The number of neighbourhood transactions* increased notably in 2014, having risen to 71 transactions from 43 in Private investors were once again net sellers of neighbourhood shopping centres, having sold (AUD 613 million) more than twice the value that was acquired (AUD 250 million). Institutions (including offshore institutions) have become significantly more prominent in the buyer composition of neighbourhood shopping centres, accounting for 65% of purchases by value in 2014 and 64% in The proportion has risen steadily since This largely reflects a continuation of the cascading effect underway over the past few years where institutions have targeted smaller format centres with higher yields. As a result, the private investor share of total acquisitions has fallen to just 14% from a high of 79% in Figure 3: Buyer composition neighbourhood sub-sector $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 0 AUD Millions Private Investors Institutions Other Source: JLL Research Regional centre investment activity decreased from previous years primarily due to the reduced pressure on large institutional investors to unlock capital. There were three regional centre transactions in The first was the CPPIB sale of a half share in Northland Shopping Centre to GPT Wholesale Shopping Centre Fund (GWSCF) for AUD 496 million in March GWSCF also * each portfolio represents one transaction 8 Australian Shopping Centre Investment Review and Outlook February 2015

9 million acquired a further 8.33% share in Highpoint Shopping Centre from the Besen family for AUD million. The third regional centre to transact was a half share in Stockland Townsville, including Kmart Townsville and development land. Stockland sold the half share to AMP Capital for AUD million but retained management rights, further demonstrating the capital partnering trend evident over the past few years. AMP Capital also sold a half share in Sugarland Shoppingtown to Stockland, a sub-regional centre in Queensland, for AUD million. CBD activity was marginally lower in 2014, predominantly reflecting the lack of major assets offered for sale. Some of the major transactions included: Challenger acquiring The Barracks in Figure 4: Transactions by price cohort all sub-sectors Brisbane (AUD million), a private investor acquiring the Block Arcade in Melbourne (AUD 80 million) and Novion Property Group s (formerly CFS Retail Property Trust) sale of Post Office Square, Brisbane for AUD 67 million to a private investor. As expected, there was a very notable decrease in bulky goods transactions in The process of institutions divesting bulky goods assets was nearing completion in 2013 when volumes hit a record level for this sub-sector. Investment activity fell from AUD 1.2 billion in 2013 to just AUD 637 million in Homemaker centres and bulky goods multi-unit centres made up a very small component (AUD 212 million) while category killers (single tenanted free-standing retail warehouses) accounted for the majority (AUD 425 million). $4,000 AUD Millions $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 0 $5 $50 million $50 $150 million $150 $300 million Over $300 million Source: JLL Research Australian Shopping Centre Investment Review and Outlook February

10 Southlands Boulevarde, WA - transacted by JLL & Macquarie as part of the LLREP3 fund recapitalisation which included five assets for in excess of AUD 600 million Portfolio activity Following two years of exceptionally high levels of portfolio activity, portfolio transactions fell in 2014 despite an ongoing demand from a range of major investors to build scale in the sector. As a percentage of all activity, portfolio transactions fell to just 15%, from 25% in 2013 and 47% in The three major retail portfolios were: the fund recapitalisation of LLREP3 comprising five subregional centres for in excess of AUD 600 million; Woolworths selling five neighbourhood centres to Sim Lian for approximately AUD 133 million and Charter Hall acquiring a portfolio of Bunnings Warehouse properties for AUD 127 million via an unlisted fund (BPF2). In addition, Blackstone acquired a multi-sector portfolio comprising seven assets from Mirvac for AUD million including one retail asset, Waverley Gardens in Victoria, for AUD million. ISPT also expanded its IRAPT portfolio adding a further three centres (75% share) for an undisclosed amount, through an existing joint venture with the Coles Group. State trends Total investment activity varied by state, with a major shift to the eastern seaboard. Victoria, South Australia and Queensland all recorded an increase in transaction activity year-on-year. New South Wales investment declined slightly but from a very high base in Western Australia was the one market that recorded particularly low levels of activity. There was a notable increase in the volume of transactions in South Australia, rising to AUD million in 2014 from AUD million in 2013, heavily boosted by the sale of three subregional centres; Arndale Central (AUD 152 million), Golden Grove Village (AUD million) and Brickworks Marketplace (for circa AUD 75.0 million)*. Despite being marginally lower than 2013, activity in New South Wales remained very strong in 2014 for the third successive year, at AUD 2.3 billion. Transactions in New South Wales were almost exclusively in the middle and low price brackets (below AUD 150 million), with the exception of the sale of Birkenhead Point. Only one of the top transactions nationally for 2014 was in New South Wales (above AUD 200 million). * exchanged on land component, the balance to exchange on completion, estimated total purchase price is $75m) 10 Australian Shopping Centre Investment Review and Outlook February 2015

11 Queensland had another highly active year in terms of the volume of transactions (AUD 1.7 billion). Neighbourhood was the major driver and to a lesser extent sub-regional. The two major transactions driving volumes were Mt Ommaney (AUD million) and a half share in Stockland Townsville (AUD million). Unlisted funds, REITs and syndicates were the key buyers of assets in Queensland over the year. Volumes in Western Australia fell significantly from the previous two years to AUD 620 million. This was primarily due to lack of stock being offered to the market. Demand for those assets that were offered for sale was robust, suggesting it was a case of assets being tightly held rather than negative investor sentiment driven by slowdown in mining investment spending and the potential flow on impacts to the retail sector. JLL research shows that vacancy rates are gradually declining towards their long-term average level. Although the reduction is a positive reflection of broader retail market conditions and correlates with a pick-up in retail sales through 2014, we continue to highlight that leasing conditions remain somewhat challenging to secure new tenants. With respect to the investment market, there has been a major increase in the number of acquisitions by private investors or companies both offshore and local that outsource the retail management function. This has contributed to a large expansion in the JLL property management portfolio in recent years. We now manage over 215 shopping centres across Australia. Tony Doherty, Head of Retail, Property and Asset Management Australia Woolstores Shopping Centre, WA - transacted by JLL on behalf of EG Funds to a private investor for AUD 40 million Australian Shopping Centre Investment Review and Outlook February

12 TOTAL AUSTRALIAN RETAIL INVESTMENT VOLUMES (AUD) WA 57m 58m m 395m 165m 235m AUD1.3 billion m 40m 43m 159m AUD620.5 million SA AUD millions m 60m 71m 22m AUD167 million m 356m 53m 35m AUD454 million ACT AUD millions m AUD44 million m 31m AUD39.6 million AUD millions Note: Analysis does not include Tasmania or Northern Territory. 12 Australian Shopping Centre Investment Review and Outlook February 2015

13 AUSTRALIA AUD7.4 billion b 492m 2.3b 1.3b 1.2b 522m AUD7.5 billion m 405m 2.5b 1.9b 637m 1.2b AUD billions QLD 6m 73m m 332m 252m 413m AUD1.4 billion 95m102m m 211m 529m 532m AUD1.7 billion NSW AUD millions m m 258m 528m 416m 438m AUD2.6 billion 81m m 780m 157m 568m AUD2.3 billion AUD millions VIC 158m 94m m 311m 247m AUD1.8 billion 102m 155m m 548m 266m 473m AUD2.2 billion AUD millions REGIONAL CBD SUB-REGIONAL NEIGHBOURHOOD BULKY GOODS OTHER Australian Shopping Centre Investment Review and Outlook February

14 Riverside Plaza, NSW transacted by JLL on behalf of AMP to Novion (NERF formerly CERF) for AUD 62.5 million Pricing and yield trends Retail yields compressed sharply during 2014, driven by stronger competition for assets, an improvement in risk appetite and a further reduction in the cost of capital. The tightening was evident on a broad-based basis across all retail sub-sectors and across the risk spectrum. Figure 5 below shows the cumulative change in average yields since Q Retail has trailed office and industrial in terms of yield compression through this cycle. This has been partly driven by a prolonged period of challenging leasing market conditions over 2009 to Leasing markets improved somewhat in 2014 along with a rebound in retail spending growth. The more positive outlook for market fundamentals has provided investors with a greater level of confidence in the short to medium term outlook. This has partly contributed to the accelerated yield tightening through Regional and sub-regional yields are unlikely to compress to the same extent as office and industrial through this cycle given they did not soften to the same extent in the 2008 and 2009 period, peak to trough. Prime CBD office yields softened by 178 bps and prime industrial softened by 176 bps, while sub-regional retail softened by 152 bps and regional softened by just 92 bps. Figure 5: Cumulative change in average yields (basis points) retail, office and industrial Basis points -175 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Sub-regional Neighbourhood Regional Prime CBD Office Prime Industrial Source: JLL Research Nationally, average retail yields firmed over the 12 months to Q to 7.87% for neighbourhood (-58 bps), to 9.05% for bulky goods (-45 bps), to 7.24% for sub-regional (-43 bps) and to 5.87% for regional (-23 bps). 14 Australian Shopping Centre Investment Review and Outlook February 2015

15 The greater tightening within the smaller formats in 2014 has resulted in a narrowing of the spread between the individual sub-sectors. The yield spread between the average regional and average sub-regional yield narrowed to 142 bps in Q from 156 bps in Q4-2013, which represented the widest spread in 11 years. Nevertheless, it still remains wide by historical standards. The 10-year long term average is 116 bps and the spread reached a low of 60 bps in This suggests there is potential for further relative yield compression in the sector, based on long term historical benchmarks. The spread between neighbourhood and sub-regional narrowed to 67 bps and is now approximately in-line with the long term average, but remains wide of the 30 bps recorded in An improvement in risk appetite has also resulted in a narrowing of the yield range (between the upper and lower end of the range) within most formats, but yields at the lower end of the range still remain conservative relative to long term average levels. The subregional, neighbourhood and bulky goods range all narrowed to 300 bps in Q4-2014, all down from 350 bps 12 months earlier. They remain 44 bps, 37 bps and 73 bps wide of their respective long term averages. The weight of capital drove a more wide-spread firming of yields in 2014, across a broader range of retail assets. It will be an interesting year for transactions and pricing of shopping centres, with yield benchmarks likely to be tested again in Yields for non-core properties may tighten further, narrowing the range between the best and worst assets, as buyers move further up the risk curve in order to continue to accumulate assets. John Burdekin, Head of Retail Valuations & Advisory Australia Lake Haven Home Mega Centre, NSW - transacted by JLL on behalf of a private investor to Altis Property Partners for AUD 40.5 million Australian Shopping Centre Investment Review and Outlook February

16 Purchaser-vendor profile The buyer profile by investor type was relatively stable from 2013 but the participants have changed. Unlisted funds were the largest buyer group for the third consecutive year and accounted for nearly half of all transactions by value (46%). The remainder of the acquisitions in 2014 were then very evenly split between offshore (15%), private investors (15%) and REITs (13%), while other buyers (8%) and superannuation (4%) accounted for minor shares. The buyer pool was less concentrated than it was in In 2013, the top four buyers accounted for 36% of the year s acquisitions by value, but this fell to just 25% in The more fragmented transaction activity evident in 2014 was less conducive to major institutional investors building scale in the sector. Challenger, Blackstone, QIC and ISPT were the drivers of major transactions in In 2014, the top four buyers by value were: TIAA Henderson Real Estate, GPT Wholesale Shopping Centre Fund, Mirvac and Challenger. Unlisted funds net buyers of AUD 1.5 billion While offshore investors and superannuation funds were less aggressive net purchasers of assets in 2014 (bought more than they sold), they remain a key driver of investment activity as a result of their indirect exposures through unlisted wholesale funds. Unlisted funds acquired AUD 3.3 billion worth of retail assets in 2014, up from AUD 2.0 billion in On a net basis (acquisitions less disposals), unlisted funds accumulated over AUD 1.5 billion worth of assets in One of the major drivers of transaction activity in 2014 was the significant increase in the participation by REIT-managed wholesale funds such as: GPT Wholesale Shopping Centre Fund, Dexus Wholesale Property Fund, Novion Enhanced Retail Fund, 360 Capital and Charter Hall through (BPF2 and Retail Partnership No. 1). In addition, various acquisitions were made by a range of other unlisted funds such as: AMP Capital via AMPCSCF (a half share in Stockland Townsville for AUD million) Challenger via Challenger Life Company (Golden Grove Village for AUD million and The Barracks for AUD million) LaSalle Investment Management (Bonnyrigg Plaza for AUD 80 million) QIC (Marsden Park for AUD 58.5 million) Offshore investors net buyers of AUD 297 million Demand from offshore investors remains strong. Approximately AUD 1.0 billion was acquired by offshore investors in 2014, equivalent to 15% of total transactions. As a share of the total, this was only marginally above the long term average (13%). However, in value terms, it is the third highest figure on record for the Australian market after 2013 and There were five major purchases by offshore institutions in 2014: TIAA Henderson Real Estate acquired a 75% share in Mt Ommaney in Queensland for AUD million from AMP Capital in October. TIAA Henderson Real Estate also acquired a half share of Greenwood Plaza (and 101 Miller St), North Sydney for AUD million from Eureka Funds Management. Port Village Shopping Centre, Qld transacted by JLL on behalf of a private investor to Primewest for AUD million 16 Australian Shopping Centre Investment Review and Outlook February 2015

17 The Sim Lian Group, a listed Singaporean development company, acquired a national portfolio of neighbourhood assets for approximately AUD 133 million in February. Blackstone acquired Waverley Gardens in Victoria for AUD million from Mirvac in July as part of a multi-sector portfolio transaction. Mulpha, a Malaysian investment group, acquired Norwest Marketown in New South Wales for AUD 120 million in December. In addition to this series of institutional transactions, there was also a high level of demand from high net worth private investors. There were approximately 13 transactions totalling AUD 294 million within this buyer cohort, comprising investors from Singapore, China, Hong Kong and Taiwan. The level of offshore participation once again was understated by the volume of capital invested through unlisted wholesale funds. Similar to 2013, demand was constrained by a shortage of suitable stock being offered for sale that meets the preferred asset characteristics for offshore investors. In addition to being the third highest year for acquisitions by offshore investors, it was also the third highest year for asset sales by offshore investors, having divested AUD 747 million. This predominantly reflected CPPIB s sale of a half share in Northland in Victoria for AUD 496 million in March. Kirsch Group sold their 50% share in Birkenhead Point (along with Abacus Property Group) for a total price of AUD 310 million in October. LaSalle and Frasers Australand sold Clemton Park Village neighbourhood shopping centre in New South Wales for AUD 48 million in December. Golden Grove, SA transacted by JLL on behalf of the purchaser (Challenger) from the Fitch Family for AUD million Superannuation funds net buyers of AUD 148 million Acquisitions by superannuation funds have slowed notably from previous years (to just AUD million in 2014), primarily driven by fewer major acquisitions being completed by ISPT. ISPT were a major driver of transactions in 2012 and 2013 acquiring over AUD 1.4 billion over the two year period and completed four transactions over AUD 100 million. The group made a number of smaller retail acquisitions in 2014 comprising: Dee Why Grand, NSW for AUD 60.5 million, a half share in the sub-regional centre Waurn Ponds in Victoria for AUD 63 million and two neighbourhood centres in NSW (Kiama and Warners Bay) for AUD 38 million and AUD million respectively. ISPT also expanded its IRAPT portfolio adding a further three centres (75% share) for an undisclosed amount, through an existing joint venture with the Coles Group. REITs net sellers of AUD 254 million REITs were net sellers for the third successive year (AUD -254 million). However, as shown on Figure 8, the net negative has been reducing since REITs were substantially less active in terms of asset sales compared with 2012 and 2013 as the process of capital partnering slows and as the sale of non-core assets also gradually slows. REITs sold AUD 1.2 billion worth of property in 2014, down from AUD 2.3 billion in 2013 and AUD 2.8 billion in Australian Shopping Centre Investment Review and Outlook February

18 Post Office Square, Qld transacted by JLL on behalf of Novion (formerly CFS) to a private syndicate for AUD 67 million REITs continue to selectively acquire as they recycle capital into new opportunities. The volume of acquisitions has remained relatively stable and consistent with the two prior years. AUD 908 million was purchased in 2014, just slightly below the AUD 1.2 billion in 2013 and AUD 1.1 billion in Federation Centres was relatively active in terms of new acquisitions, purchasing a 25% share in Mt Ommaney for AUD million (alongside joint venture partner, TIAA Henderson for the remaining 75%), Currambine Central in Western Australia for AUD 74 million and Bentons Square in Victoria for AUD million, in addition to a number of assets from their syndicate business. Mirvac made the largest new acquisition by a REIT in 2014, purchasing Birkenhead Point for AUD 310 million from Abacus Property Group and Kirsch Group. Charter Hall Retail REIT reduced the number and volume of acquisitions considerably from previous years, making just one new purchase in early 2014: Coomera City Centre in Queensland for AUD 59.2 million. There continues to be a major trend towards REITs (and REITmanaged wholesale funds) retaining management rights. It remains a significant opportunity for these institutions to supplement income by leveraging management expertise and harnessing passive offshore investors and some domestic wholesale investors. This was evident in the acquisition of a half share in Stockland Townsville (AUD million) by AMP Capital and Mt Ommaney by Federation Centres (25%) and TIAA Henderson (75%) for AUD million in November. It was also evident in the sale of a half share in Greenwood Plaza and 101 Miller Street, North Sydney by Eureka, also to TIAA Henderson, where the co-owner (Mirvac) is retaining management over the retail and office components. Private Investors net sellers of AUD 781 million Private investors sold AUD 1.8 billion worth of retail assets in 2014 and acquired AUD 1.0 billion. This buyer type therefore remained net sellers in 2014 (AUD -781 million) for the second consecutive year, although marginally less than in 2013 (AUD -920 million). This represents a cyclical trend of trading out of assets bought through the 2008 to 2010 period. While the increase in asset sales by private investors was across the board (large and small assets), it is particularly worth highlighting the rise in the number of large assets sold by private investors from previous years. There were 12 transactions for over AUD 50 million totalling AUD 1.1 billion where private investors were sellers, compared with six totalling AUD 901 million in The major contributor was the Besen family selling an 8.33% share in Highpoint Shopping Centre, a regional shopping centre in Victoria, for AUD million to GPT Wholesale Shopping Centre Fund in September The second major contributor was the sale of Golden Grove Village in Adelaide for AUD million to Challenger Life Company in June Australian Shopping Centre Investment Review and Outlook February 2015

19 Other net sellers of AUD 932 million The major owners within the other category are corporates groups such as Coles and Woolworths, developers and syndicates. The other category is a major source of investment product given a significant proportion of asset creation has occurred as a result of these owners. This category has been a net seller of assets for every calendar year since JLL began monitoring transactions in In the last four years (2011 to 2014), these owners were net sellers of AUD 4.6 billion. The breakdown of the components of other varies from year to year, particularly due to some large portfolio sales by corporates, namely: Woolworths and Coles supermarkets, and Bunnings Warehouses. There was a range of asset sales by corporates in 2014 comprising: a portfolio of neighbourhood centres sold by Woolworths, a portfolio of Bunnings Warehouses sold by Bunnings Group (Wesfarmers) and a portfolio of three neighbourhood centres sold by Coles Group to ISPT as part of an existing joint venture arrangement. In addition to these portfolios, a range of individual assets were sold (11) including a number of neighbourhood centres, freestanding supermarkets and Bunnings Warehouses, totalling AUD 268 million. Figure 6: Buyer profile Figure 7: Vendor profile 13% 4% Unlisted 16% 2% 24% Unlisted 8% 46% Offshore Private Investors Offshore Private Investors 15% Other A-REITs 21% 11% Other A-REITs 15% Superannuation 26% Superannuation Source: JLL Research Source: JLL Research Figure 8: Net buyer analysis $2,000 AUD Millions $1,500 $1,000 $500 $0 -$500 -$1,000 -$1,500 -$2,000 A-REITs Unlisted Other Offshore Superannuation Funds Private Investors Source: JLL Research Australian Shopping Centre Investment Review and Outlook February

20 MAJOR TRANSACTIONS 2014 Lend Lease Real Estate Partners Portfolio 3, National Sold by JLL* Fund recapitalisation by Lend Lease Investment Management Five sub-regional shopping centres Equivalent asset pricing equated to in excess of AUD 600 million ($5,720/sqm) Blended initial fully leased yield of circa 6.23% Transacted in September 2014 Portfolio GLA 104,896 sqm The 5 sub-regional assets included: -- Menai Marketplace, NSW -- Settlement City, NSW -- Southlands Boulevarde, WA -- Armadale Shopping City, WA -- Northgate Shopping Centre, WA The largest transaction in the Australian retail market for 2014 resetting the sub-regional yield benchmarks within Australia * Co-agent Macquarie 20 Australian Shopping Centre Investment Review and Outlook February 2015

21 Northland Shopping Centre, Victoria (50%) GPT Wholesale Shopping Centre Fund (GWSCF) acquired a 50% interest in Northland Shopping Centre from Canada Pension Plan Investment Board (CPPIB) Super regional shopping centre Transacted in March 2014 AUD 496 million ($10,738/sqm) Core cap rate of 5.80% Novion Property Group owns the residual 50% interest and retained management and development rights GLA of 92,380 sqm Major tenants include: Myer department store, Target DDS, Kmart DDS, Woolworths supermarket, Coles supermarket and Hoyts 314 tenancies Northland Shopping Centre was ranked the 7th largest in Melbourne, from a GLA and total centre MAT perspective, according to Shopping Centre News, 2014 Big Guns Mt Ommaney Centre, Queensland TIAA Henderson & FDC acquired Mt Ommaney Shopping Centre from AMP Capital Sub-regional shopping centre Transacted in October 2014 AUD million ($7,362/sqm) Core cap rate of 6.00% TIAA Henderson acquired a 75% interest while FDC acquired a 25% interest with management and development rights GLA of 56,543 sqm Major tenants include: Woolworths, Coles & ALDI supermarkets, Kmart, Target and Big W DDSs and 4 mini majors 144 specialty tenancies Mt Ommaney Shopping Centre was ranked the 9th highest MAT/sqm among retail centres in Queensland, according to Shopping Centre News, 2014 Big Guns Australian Shopping Centre Investment Review and Outlook February

22 Birkenhead Point Shopping Centre and Marina, New South Wales Sold by JLL* Mirvac Group acquired Birkenhead Point from Abacus Property Group & Kirsch Group Hybrid Outlet Shopping Centre Transacted in October 2014 AUD 310 million ($9,347/sqm) Fully leased yield of 6.60% The transaction included the sale of the 201 berth Marina and Car Park GLA of 33,166 sqm Major tenants include: Coles supermarket, ALDI supermarket, Spotlight and 7 mini major tenants 129 specialty tenancies A strong indicator to the yield compression and cyclical re-trading story that has occurred having sold in July 2010 for AUD 174 million representing a premium of AUD 136 million The asset offers numerous value enhancement opportunities including a remix of existing tenancies * Co-agent McVay Real Estate Stockland Townsville, Queensland (50%) AMP Capital (AMPCSCF) acquired 50% of Stockland Townsville Regional shopping centre AUD million ($7,798/sqm) Transacted in October 2014 Total GLA 58,653 sqm -- Stockland Townsville 45,000 sqm -- Kmart Townsville 13,653 sqm Transaction comprised: -- 50% interest in Stockland Townsville AUD million (6.25%) -- 50% interest in Kmart Townsville AUD million (7.25%) -- 50% interest in a development site AUD million ($533/sqm) Stockland will retain management, leasing and development control Recently underwent an AUD 180 million redevelopment and has DA approval for the creation of an entertainment and lifestyle precinct This transaction follows AMP s sale of a 50% interest of Sugarland Shoppingtown to Stockland for AUD million in October 2014, further demonstrating the capital partnering trend evident over the past few years 22 Australian Shopping Centre Investment Review and Outlook February 2015

23 Greenwood Plaza (and 101 Miller St), New South Wales (50%) Sold by JLL* TIAA Henderson acquired Eureka Funds Management s 50% share in Greenwood Plaza/101 Miller Street Mixed use asset AUD million ($13,325/sqm)^ Initial fully leased yield of 6.43% Transacted in October 2014 Total lettable area 46,326 sqm -- Greenwood Plaza GLA - 8,777 sqm Miller Street NLA - 37,549 sqm -- The remaining 50% share will continue to be managed by the Mirvac Group Greenwood Plaza is the dominant retail centre in North Sydney, ranked 7th nationally on a MAT/sqm basis according to Shopping Centre News, CBD Guns Miller Street is the only premium grade office building in North Sydney. Sale price represents a gross figure. The purchaser is responsible for AUD 3.5 million of outstanding incentives (50%) * Co-agent CBRE ^ Pricing split unavailable sale price represents both the retail and commercial component Australian Shopping Centre Investment Review and Outlook February

24 MACROECONOMIC ENVIRONMENT Greenwood Plaza (& 101 Miller St), NSW (50%) - transacted by JLL & CBRE on behalf of Eureka Funds Management to TIAA-Henderson for AUD million The broad macroeconomic backdrop for Australia improved through The shift from mining investment spending towards domestic drivers has progressed and households have benefited from the Reserve Bank of Australia s accommodative monetary policy position which is supporting the transition. Household consumption growth accelerated to 2.4% (year-on-year) in Q from 1.8% in Q The official cash rate has remained historically low at 2.50% and importantly for consumer confidence, it has been stable for 17 months (as at January 2015). With inflation expected to remain within or close to the RBA s target band, and the exchange rate holding above USD 0.80c, expectations have been growing that a further interest rate reduction is probable in the first half of The steady change in sentiment, and the current outlook, is shown in the cash rate implied by the interbank futures market through the course of 2014 (Figure 9). The AUD depreciated further through Against the USD, it fell by 8% from 2013 but fell by 13% from a high reached in July On a trade weighted basis the AUD fell by just 3.5% through 2014 reflecting a relative strengthening in USD rather than depreciation in the AUD. Nevertheless, the change will have some notable implications for the retail sector for While the cost of overseas inventory (general) will rise for retailers, the change in the flow of tourists Figure 9: Futures market implied expectations of the RBA cash rate 3.00 % Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 In February In May In July In August In December Source: ASX, JLL Research will be a positive driver for retail spending. The weaker exchange rate may result in a further slowing in the number of Australians travelling overseas, and encourage international tourism into Australia. Visitor arrivals grew by 7.1% in the year to September 2014, compared with just 3.2% for visitor departures over the same period. 24 Australian Shopping Centre Investment Review and Outlook February 2015

25 Another implication of a weaker exchange rate is potentially lower levels of online retail spending through international retailers. According to NAB Online Retail Sales Index, online retail sales slowed to just 3.9% year-on-year in November 2014, and the share of online spending on domestic purchases is rising (now over 75% of the total), highlighting the impact of the exchange rate. The rise in domestic online sales may also partly reflect the strong investment made in online platforms by Australian traditional bricks and mortar retailers as they adapt to the changing methods of consumer spending. A number of other changes in the financial and commodity markets will have flow on effects for the retail sector. A sharp decline in the oil price in late 2014 and early 2015 will be a positive for household budgets because petrol prices will be significantly lower, at least in the short term. CBA estimate that the decline in the oil price could add up to 1.2% per annum to total Australian retail turnover growth. While the fall in the oil price is likely to lead to cancellation of some major projects, some job losses and a fall in consumer confidence, particularly in Queensland and Western Australia, the weaker exchange rate will offer a partial offset to weaker commodity prices. On balance, the fall in oil prices is expected to be a positive for the Australian economy and for retail spending. It is possible that rising household wealth will become less of a positive driver of retail spending in 2015 than it was in The S&P ASX 200 Index traded flat through in 2014 (+1.1%), after having risen by 15.1% in 2013 and 14.6% in House prices however rose by 9.1% on average across the eight capital cities in the 12 months to September 2014, supporting a continued rise in household wealth. House price growth was strongest in Sydney (14.6%) by a significant margin. Melbourne recorded the second strongest level of growth at 6.9% over the same period. In addition to strong house price growth, housing construction recovered significantly in 2014 which had positive flow on effects for the bulky goods retail sector. New residential construction rose by 7.0% over the 12 months to September Despite rising residential values and low interest rates, consumer confidence has remained fragile. The Westpac-Melbourne Institute Consumer Sentiment Index fell by 13% over 2014 and was below the neutral level of 100 for 10 out of 12 months. This predominantly reflected the impact of a weakening labour market. Labour market conditions were relatively weak between Q1 and Q3-2014, but improved in November and December with a decline in the unemployment rate from 6.2% in November to 6.1% in December. The key driver for retail spending is the total number of people employed. On this basis, the number of people employed hit an all-time record high in December at 11.7 million, 1.9% higher than 12 months prior. The labour market does pose some risk to the outlook for the retail sector in 2015 with wages growth having slowed to just 2.6% per annum in September 2014, below the 10- year average of 3.6% per annum. Birkenhead Point, NSW - transacted by JLL & McVay on behalf of Abacus Property Group & Kirsch Group to Mirvac for AUD 310 million Australian Shopping Centre Investment Review and Outlook February

26 RETAIL SPENDING TRENDS Sturt Mall, Wagga Wagga, NSW transacted by JLL on behalf of the purchaser (DWPF) from LGS for AUD 61.2 million Retail turnover growth accelerated through Following an extended period of very low growth of between 2.0% and 3.5% between 2010 and 2013, total retail turnover growth rose to 5.5% year-on-year (as of November), driven by accommodative interest rate settings, rising household wealth and the increase in employment. The recovery was not completely even between the states or major retail categories. A stronger than predicted recovery in residential construction drove a solid rebound in household goods spending to 6.6% (year-on-year) in November 2014, which follows a very subdued period between 2009 and 2013 when growth averaged just 1.3% per annum. Household goods is a major component of total retail spending and is the second largest spending category after food, accounting for 17% of the total. Cafés, restaurants and takeaway food recorded very strong growth since March 2014, rising to 10.2% in November 2014 (year-on-year). Clothing, footwear and personal accessory retailing grew to an above trend pace in the first half of 2014 but slowed slightly in the second half to 3.4% year-on-year in November. The historically stable food category is growing at 5.7% year-onyear, fractionally ahead of its 10-year long term average pace of 5.5%. Department stores remain the laggard. Spending in this category has been contracting on a year-on-year basis since September 2013, and fell by 0.4% in November As a proportion of total retail turnover, department store turnover has fallen steadily from a high of 14% in 1984 to just 6.4% in November 2014, revealing a long term structural decline, rather than (although not supported by) new trends such as online retailing and new international retailer competition. Figure 10: Total retail turnover growth 10% 9% 8% 7% 6% 5% Year-on-Year 4% 3% 2% 1% 0% Nov-1999 Nov-2002 Nov-2005 Nov-2008 Nov-2011 Nov-2014 Total Retail 15-Year Average Source: ABS, JLL Research 26 Australian Shopping Centre Investment Review and Outlook February 2015

27 The trends between the different states have reversed in 2014 from the 2012 and 2013 period. Queensland and Western Australia have shifted from being the fastest growing states (in terms of retail turnover growth), to the slowest, and New South Wales and Victoria are now growing at the fastest pace. Strong house price growth in Sydney has driven a resurgence in retail spending. Retail turnover growth for New South Wales is now rising at 8.6% year-on-year as at November, approximately twice the pace of its 10-year long term average. Victoria has followed a similar recovery profile and recorded an above average rate of growth as at November (6.2% year-on-year), although continues to grow at a slightly more modest pace than New South Wales. South Australia has gradually recovered over 12 months to November 2014 (3.4% year-on-year), following an extended period of very low, or negative, retail turnover growth. Queensland has recorded reasonably stable retail turnover growth over the past few years but slowed slightly in the second half of 2014 to 3.4% year-on-year in November Western Australia has slowed from a very high base in 2012 but now seems to have past the trough, with retail turnover growth rising from 1.4% yearon-year in August 2014 to 1.7% in November Deloitte Access Economics forecasts retail turnover growth to moderate nationally in 2015, reflecting a slowdown in New South Wales and Victoria from the above-trend levels recorded in 2014, and to be only partially offset by an acceleration in the rate of growth in Western Australia and Queensland. Figure 11: Retail turnover growth by state 12% 10% 8% 6% 4% 2% Year-on-Year Deepwater Plaza, Woy Woy, NSW - transacted by JLL on behalf of the purchaser (DWPF) from a private investor for AUD 98.5 million As expected, low interest rates, rising house prices and an improvement in the household balance sheet has been accompanied by a recovery in retail spending growth through Currently the futures market is pricing in a further cut in the official cash rate and recent data points to an improvement in the labour market. Some concerns remain. Consumer confidence is fragile and the transition from export led growth remains tentative and business domestic investment plans are cautious. We believe that the recovery in retail spending is sustainable, but the pace of recovery is likely to flatten during High levels of residential construction will support spending on durable goods and home furnishings, while a weaker exchange rate will encourage in-bound tourism and reinforce the trend towards domestic rather than offshore on-line purchases. 0% -2% Nov-2011 Nov-2012 Nov-2013 Nov-2014 NSW VIC QLD SA WA Dr David Rees, Head of Research Source: ABS, JLL Research Australasia Australian Shopping Centre Investment Review and Outlook February

28 RETAIL PROPERTY MARKET FUNDAMENTALS Settlement City, NSW - transacted by JLL & Macquarie as part of LLREP3 fund recapitalisation which comprised five assets for in excess of AUD 600 milli The recent recovery in retail turnover has only translated into a modest improvement in leasing demand from domestic retailers to date. Sentiment in the leasing market is improving and a more sustained recovery in retail spending will rebuild retailer confidence and financial position, supporting leasing demand for International retailers continue to expand in the local market, absorbing vacancy partly within existing centres but predominantly within new developments. The major international retailers are currently in various stages of expansion, having established flagship CBD sites and now expanding into suburban regional centres. Institutional landlords are using redevelopments as an opportunity to introduce these international retailers to their centres and to enhance their offering and tenancy mix. The strong rebound in household goods spending has resulted in a notable improvement in the performance of bulky goods centres and leasing conditions have improved notably from the weak levels that persisted for the five years leading up to The homemaker sector has also benefitted from very low levels of new supply over this five year period after supply was essentially cut off at the onset of the Global Financial Crisis, before a slow supplydemand rebalancing process began. The average retail vacancy rate across all retail sub-sectors has trended down to 3.2% in December 2014 from a high of 4.0% in June 2013, and is now just slightly above the 10-year long term average (3.0%). The downward trend in vacancy over 2014 was consistent across all the retail sub-sectors and all markets except Sydney, which remained unchanged. The average vacancy rate for Sydney was already relatively low in a historical context and is the lowest of all the Australian markets at just 2.2%. The CBD vacancy rate contracted nationally to 5.5% from 6.6%, between December 2013 and December The decline was largely driven by new international retailers, the completion of a range of new developments and stronger inbound tourism growth boosting CBD retail trade. The average vacancy rate for neighbourhood centres fell marginally over the year from 4.1% to 3.9% but we highlight that vacancy rates are higher within newly developed centres. Of the 21 neighbourhood centres that completed construction in 2014, equating to 112,500 sqm, the absorption rate on a floor area basis was just 79% which is stable from Vacancy rates also trended down in the regional and sub-regional market. The regional vacancy rate declined to 1.1% from 1.5% and sub-regional declined from 3.0% to 2.4% over the same period. We expect that part of the decline reflects the commencement of developments, where stores were held vacant as centres prepared for redevelopment works to commence. 28 Australian Shopping Centre Investment Review and Outlook February 2015

29 on The supply of retail space (excluding bulky goods category killers) increased significantly in 2013 to 498,000 sqm (+58% from 2012) but remained relatively stable in 2014 at 521,000 sqm (+4.6%). Supply of retail space in 2014 was dominated by regional centres (161,000 sqm, or 31% of the total) reflecting the completion of expansions to: Macquarie Shopping Centre (41,200 sqm), Westfield Garden City (39,400 sqm), Indooroopilly (32,000 sqm), Lakeside Joondalup (28,300 sqm) and Cockburn Gateway (20,000 sqm). There is likely to be much less new supply in 2015 (352,000 sqm) reflecting far fewer regional centre expansions completing. We expect there will be a second wave of regional supply from 2016 and potentially into Four regional redevelopments are already underway and scheduled to complete in 2016 which will add approximately 157,000 sqm of new supply, and there is a large list of potential projects with plans approved or submitted for development. Sub-regional development activity is expected to rise over the next two years from just 74,000 sqm of new supply in 2014, to 149,000 sqm in 2015 and 160,000 sqm in 2016 including projects that are under construction or have plans approved. Neighbourhood supply is expected to remain relatively consistent over the next three years ( ) at approximately 110,000 sqm to 130,000 sqm per annum, broadly in-line with the long term average. Tightening retail yields throughout 2014 have made redevelopments and centre expansions a more attractive proposition in terms of feasibility and relative to new acquisitions. In addition, competitive market conditions for new acquisitions, a strong build-up of funds seeking to be invested into retail assets and the wide range of properties that still require upgrading, will all contribute to further development activity. Landlords will also be encouraged to expand centres or reconfigure centres to incorporate new international brands wanting to expand their local store networks. On balance, the fundamentals for the overall retail market remain relatively sound and continue to be in a slow and gradual recovery. While some individual retailers may face greater levels of competition, the majority will be buoyed by the recovery in retail spending and the leasing market will continue to benefit from new market entrants. CBD Regional Sub-regional Neighbourhood Bulky goods - multi-unit 2014 Change from Mth Outlook 2014 Change from Mth Outlook 2014 Change from Mth Outlook 2014 Change from Mth Outlook 2014 Change from Mth Outlook Supply - completions sqm 73, ,910 73, ,507 94,397 Vacancy (%) 5.5% 1.1% 2.4% 3.9% Rents (annual %) 0.0% -0.1% 0.2% 0.0% 0.3% Yield (%) 6.68% 5.87% 7.29% 7.95% 9.05% Source: JLL Research Australian Shopping Centre Investment Review and Outlook February

30 RETAIL INVESTMENT MARKET OUTLOOK Piccadilly Sydney, NSW (50%) - transacted by JLL on behalf of Stockland to Investa Office Fund for AUD million (inclusive of retail & office) Competition for assets will remain high through Assets are likely to be more tightly held and given this potential reduction in the supply of investment product, we expect transaction volumes to moderate from the exceptionally high levels over the past three years, but to remain high in a historical context. Those assets that do come to market are likely to be competitively pursued but we expect the pace of yield compression to moderate after the big shifts recorded in If there are fewer opportunities to build scale through the direct market and demand for assets continues to increase, it may result in greater levels of corporate mergers and acquisitions activity in order to grow funds under management. This is how we see some of the themes in the retail investment market evolving: Less risk aversion - greater diversity in the type and quality of assets sought after Demand is expected to remain strong for a wide variety of shopping centre formats and asset quality, so there is likely to be less clear direction as to which format will be specifically targeted by purchasers. As risk aversion gradually subsides and the need for higher yields remains, it is likely to lead investors more towards assets with a greater level of risk attached. We expect investors will become less rigid with their requirements and targeted assets. Transaction activity is therefore likely to be more diverse and opportunity led moving forward. REITs will continue to recycle capital into new opportunities REITs have been a major source of investment product on the sell side in the last three years. The process of portfolio refining is yet to fully run its course, and we expect REITs to continue to divest further non-core assets to take advantage of high market liquidity and yield tightening that has occurred for mid-tier and secondary grade assets. Given the high level of non-core asset sales by REITs over the past three years, disposals of these types of assets are likely to slow further in It is also possible that some REITs will look to divest part shares in some large passive assets to unlock equity for other ventures. Unlocking product for unlisted wholesale investors We expect REIT-managed unlisted wholesale funds to once again be the key drivers of acquisitions in 2015 as they continue to channel offshore capital and domestic superannuation capital. The challenge will be in finding opportunities to deploy capital given there is a reasonably strong development pipeline that is largely already committed and that major investment opportunities are likely to be more limited. 30 Australian Shopping Centre Investment Review and Outlook February 2015

31 Capital partnering theme to continue Demand for Australian retail assets from offshore investors remains firm. Strong inflows of capital from offshore sources are likely to continue given the ongoing wide yield spread to prime quality retail assets in many other major cities around the world. We expect sovereign wealth funds and overseas pension funds to continue to seek opportunities in Australia, given its status as a mature and stable market within the Asia Pacific region. These investors are likely to continue to seek joint ventures with domestic owners in order to access investment product. Private investors to remain active We expect private investors to continue to increase their level of asset sales. This trend will create opportunities for institutions seeking to build exposure to neighbourhood shopping centres in particular. On that basis, we expect the investor composition for neighbourhood transactions to remain largely dominated by institutions. However, the ongoing low cost of debt could encourage some opportunistic private investors to continue to make further acquisitions. Despite record levels of investment into the retail sector for three consecutive years, the pool of capital seeking opportunities is continuing to expand. The defensive characteristics of the retail sector remain attractive to range of different domestic and offshore investor groups including various SWFs and global pension funds looking for large stable assets with strong risk adjusted returns. Joint venture transactions are going to continue in 2015 as domestic owners reduce their exposure to large mature assets to fund higher yielding development and acquisition opportunities. There is also a highly active and strengthening buyer market for smaller and mid-sized value-add and opportunistic style assets. More investors will be taking the opportunity to trade out of some investments made through the GFC to recycle capital into new ventures. Simon Rooney, Head of Retail Investments Australasia Australian Shopping Centre Investment Review and Outlook February

32 2014 RETAIL TRANSACTIONS IN AUSTRALIA (OVER AUD 10 MILLION) Property Name Suburb State Date Sale Price (AUD) Regional Centres Initial Yield (Passing) Initial Yield (Fully Leased) GLA (SQM) Price/m² Vendor Buyer Northland Shopping Centre (50%) Preston VIC Mar ,000, % 5.80% 92,380 $10,738 Canada Pension Plan Investment Board GPT Wholesale Shopping Centre Fund Stockland Townsville Shopping Centre (50%) Aitkenvale QLD Oct ,700, % 6.25% 58,681 $7,795 Stockland AMP Capital Shopping Centre Fund Highpoint Shopping Centre (8.33%) Maribyrnong VIC Sep ,300, % 5.50% 153,900 $12,031 Besen Family GPT Wholesale Shopping Centre Fund (GWSCF) Total 879,000,000 CBD The Barracks Brisbane QLD Sep ,951, % 7.60% 19,712 $7,303 Property Solutions Challenger Life Company The Block Arcade Melbourne VIC Apr ,000, % 5.18% 7,898 $10,129 John Kearney Cohen Family Post Office Square Brisbane QLD Oct ,000, ,756 $38,155 CFS Retail Property Trust Group Private Investor 192 Pitt Street Sydney NSW Oct ,800, % 3.52% 1,027 $31,938 Lee Tai Enterprises The Hour Glass Bing Lee, George Street Sydney NSW May ,500, % 984 $11,687 Beipan Holdings Top Silver International Pty Ltd Rundle Mall Adelaide SA Dec ,200, Undisclosed Undisclosed Piccadilly Arcade (50%) Sydney NSW Feb ,097 - Stockland Investa Office Fund Total 404,516,000 Sub-regional Centres Lend Lease Real Estate Partners 3 Various Various Sep ,000, % 6.23% 104,896 $5,815 Lend Lease Investment Management Lend Lease Investment Management (LLREP3) - Portfolio Transaction Mt Ommaney Shopping Centre Mount Ommaney QLD Oct ,250, % 6.38% 56,543 $7,362 AMP Capital TIAA Henderson Real Estate / Federation Centres Arndale Central Kilkenny SA Sep ,000, % 7.97% 37,757 $4,056 Federation Centres Armada Funds Management Waverley Gardens Shopping Centre (P) Mulgrave VIC Jul ,500, % 7.75% 38,169 $3,655 Mirvac Group Blackstone Golden Grove Village Golden Grove SA Jun ,100, % 7.41% 33,109 $3,899 Private Investor Challenger Life Company Mildura Central Mildura VIC Dec ,750, % 7.25% 20,200 $5,433 Federation Centres Novion Enhanced Retail Fund (NERF) Deepwater Plaza Woy Woy NSW Jul ,500, % 7.05% 18,207 $5,410 Schwartz Family Co Pty Limited DEXUS Wholesale Property Fund (DWPF) Bonnyrigg Plaza Bonnyrigg NSW Feb ,000, % 8.11% 20,691 $3,866 Shopping Centre Management Pty Ltd LaSalle Investment Management Brickworks Marketplace Torrensville SA Dec ,000, % 6.89% 17,306 $4,334 Woolworths (Fabcot) Charter Hall Retail Partnership No.1 (CHRP1) Shepparton Marketplace Shepparton VIC Dec ,595, % 6.74% 16,350 $4,318 Woolshep Nominees DEXUS Wholesale Property Fund (DWPF) Campsie Centre Campsie NSW Apr ,000, % 9.04% 13,239 $5,061 Cobav Private Investor Waurn Ponds Shopping Centre (50%) Waurn Ponds VIC Jun ,000, % 7.39% 26,341 $4,783 Australian Unity Retail Property Fund ISPT Core Fund Riverside Plaza Queanbeyan NSW Jun ,500, % 8.94% 21,391 $2,922 AMP Riverside Plaza Trust CFSGAM Property Enhanced Retail Fund (CERF) Sturt Mall Wagga Wagga NSW Jul ,200, % 7.22% 15,255 $4,012 Local Government Super DEXUS Wholesale Property Fund (DWPF) Ballina Fair Shopping Centre Ballina NSW Jun ,100, % 8.86% 16,117 $3,729 Colonial (PPS) George Raptis Sugarland Shoppingtown (50%) Bundaberg QLD Oct ,250, % 7.50% 22,795 $5,199 AMP Capital Stockland Brandon Park (50%) Wheelers Hill VIC Sep ,900, % 7.75% 22,735 $5,093 Federation Centres Undisclosed Superannuation Fund Springwood Shopping Centre Springwood QLD Jun ,250, % 7.96% 15,559 $3,422 Federation Centres Wen Family Somerville Shopping Centre Somerville VIC Jun ,050, % 7.98% 16,521 $2,545 Federation Centres Private Investor Horsham Plaza Horsham VIC Oct ,850, % 9.05% 12,701 $1,957 Private Syndicate Raywick and Seventh Dector Stirling Centre Bunbury WA Mar ,750, % 7.98% 5,865 $3,197 Notebook Investments Pty Ltd Primewest Total 2,480,545,000 Neighbourhood Centres Woolworths - Sim Lian Group portfolio Various Various Feb ,000, Woolworths Limited (Fabcot) Sim Lian Group Norwest Marketown Baulkham Hills NSW Dec ,000, % 5.26% 11,492 $10,442 Norwest Marketown Pty Ltd Norwest City Pty Ltd (Mulpha) Burwood Plaza Burwood NSW Nov ,000, % 5.46% 12,361 $6,472 Centuria Diversified Direct Property Fund Holdmark Property Group Currambine Central Currambine WA Dec ,000, ,598 $5,874 White and Partners Federation Centres Bathurst City Centre Bathurst NSW Jul ,600, % 7.75% 12,241 $5,114 Oracle CFSGAM Property Enhanced Retail Fund (CERF) Dee Why Grand Dee Why NSW Dec ,500, ,264 $5,894 Private Investor ISPT Retail Australia Property Trust Coomera City Centre Coomera QLD Apr ,200, % 7.57% 9,431 $6,277 Lewani Springs Resort Pty Ltd Charter Hall Retail REIT Marsden Park Shopping Centre Marsden QLD Jul ,500, % 8.32% 8,260 $7,082 Ashe Morgan QIC Windsor Riverview Shopping Centre Windsor NSW Jul ,000, % 7.00% 7,924 $5,995 Private Investor Australian Property Opportunities Fund Clemton Park Village Clemton Park NSW Dec ,000, % 7.39% 6,900 $6,957 LaSalle Investment Management / Frasers Australand SCA Property Group

33 2014 RETAIL TRANSACTIONS IN AUSTRALIA (OVER AUD 10 MILLION) Property Name Suburb State Date Sale Price (AUD) Initial Yield (Passing) Initial Yield (Fully Leased) GLA (SQM) Price/m² Vendor Buyer Northwest Plaza Everton Park QLD Sep ,200, % 7.75% 9,491 $4,340 Everton Park Development Co Pty Ltd EG Funds Woolstores Shopping Centre Fremantle WA Dec ,000, % - 7,899 $5,064 EG Funds Private Investor Bentons Square (50%) Mornington VIC Oct ,250, % 6.25% 9,733 $7,860 Private Investor Federation Centres Kiama Village Kiama NSW Dec ,000, % 7.12% 5,191 $7,320 Ganellen ISPT Retail Australia Property Trust Northpoint Shopping Centre North QLD Sep ,500, % 7.63% 6,868 $5,315 Hallmark Property Pty Ltd Fort Street Real Estate Capital Toowoomba Warners Bay Village Warners Bay NSW Dec ,250, % 7.15% 5,118 $7,126 Ganellen ISPT Retail Australia Property Trust The Station Shopping Centre Oxley QLD Apr ,625, % 7.89% 7,084 $4,880 Property Solutions Folkestone Limited Dee Why Market Shopping Centre Dee Why NSW Sep ,000, % 6.25% 4,616 $7,366 Ashe Morgan Private Investor Junction Fair Shopping Centre The Junction NSW Oct ,300, % 9.51% 7,244 $4,459 AMP Capital Property Income Fund Fortius Funds Management The Markets West End QLD Oct ,000, % - 5,252 $6,093 Private Investor SCA Property Group Brassall Shopping Village Brassall QLD Sep ,800, % 7.55% 10,393 $2,867 Happiness Enterprises Pty Ltd Primewest Gateway Plaza Leopold VIC Aug ,000, % 7.40% 5,221 $4,980 Lascorp Development Group (Aust) CFSGAM Property Enhanced Retail Fund (CERF) Mornington Village Shopping Centre Mornington VIC Jan ,800, % 7.67% 7,963 $3,241 MAB Funds Management Limited Private Investor Dernancourt Village Shopping Centre Dernancourt SA Jul ,500, % 8.19% 8,409 $3,032 Dernancourt Village Group Pty Ltd Primewest Port Village Shopping Centre Port Douglas QLD Mar ,259, % 8.50% 6,358 $3,973 Kator Pty Ltd Primewest Noosa Village Shopping Centre Noosaville QLD Nov ,100, % 7.96% 4,686 $5,356 Private Investor Australian Property Opportunities Fund Carine Glades Shopping Centre Duncraig WA Aug ,250, % 8.36% 3,072 $7,893 Carine Glades Shopping Centre Pty Ltd Australasian Property Investments Limited Mountain High Shopping Centre Bayswater VIC Sep ,500, % 7.30% 7,674 $2,932 Lemax Private Investor Edgeworth Town Square Edgeworth NSW Jan ,200, % 9.14% 4,655 $4,769 Perpetual Limited (Mortgagee in Possession) Primewest Market Plaza Chipping Norton NSW Mar ,018, % 8.63% 4,339 $4,614 Bellavita 2005 Pty Ltd Chen Quan Investments Pty Ltd Jimboomba Junction Jimboomba QLD Apr ,000, % 8.68% 5,869 $3,408 Private Investor Sentinel Jimboomba Retail Trust The Avenue Village Shopping Centre Cranbourne VIC Nov ,700, % 7.12% 4,455 $4,422 Private Investor Private Investor North Muswellbrook Fair Muswellbrook NSW Dec ,700, % 8.65% 8,671 $2,272 Muswellbrook Fair Pty Ltd Tipalea Partners Windsor Marketplace Windsor NSW Dec ,600, % 5,347 $3,666 Charter Hall Retail Partnership No.1 (CHRP1) 360 Capital Retail Fund No. 1 Coburg Hill Shopping Centre Coburg North VIC Nov ,900, % - 4,426 $4,270 Undisclosed APN Coburg North Retail Fund Beaudesert Fair Beaudesert QLD Dec ,500, % 8.94% 7,290 $2,538 BNY Trust Company of Australia Limited Allo Pty Ltd Emerald Village Emerald QLD Nov ,300, % 12.22% 7,324 $2,499 Federation Centres Sentinel Countrywide Retail Trust Ocean Village Shopping Centre Ocean Shores NSW Dec ,500, % 7.43% 5,652 $3,096 Private Investor Whistle Funds Management Hilltop Shopping Centre North Lakes QLD Sep ,200, % 8.09% 3,195 $4,757 Bluff Downs No.2 Pty Ltd Private Investor Central Fair Shopping Centre Mount Gravatt QLD Sep ,850, ,800 $2,184 Central Fair Shopping Centre Pty Ltd Hydrox Nominees Emerald Market Emerald QLD Nov ,700, % 11.20% 6,487 $2,266 Federation Centres Sentinel Countrywide Retail Trust Bronberg Plaza Southport QLD Aug ,400, % 8.01% 2,418 $5,955 KGS Holdings Private Investor Northam Boulevard Shopping Centre Northam WA Jan ,050, % 9.19% 6,348 $2,213 Kahlua Pty Ltd & Shaunella Pty Ltd Private Investor Riverdale Shopping Centre Dubbo NSW Aug ,000, % 9.65% 6,153 $2,275 Charter Hall PFA Diversified Property Trust Sentinel Countrywide Retail Trust Dubbo Warrnambool Shopping Centre Warrnambool VIC Nov ,736, % 7.72% 4,491 $3,059 Federation Centres Undisclosed Rutherford Shopping Centre (P) Rutherford NSW May ,000, % 8.62% 4,204 $3,093 GWH Build Sentinel Retail Trust Vale Town Centre Aveley WA Dec ,700, % 7.51% 2,965 $4,283 Stockland/Fourever Pty Ltd Private Investor Greenfield Shopping Village Greenfield Park NSW Feb ,375, % 9.86% 3,709 $3,336 Greenfield Village Pty Ltd Banna Investments Tanilba Bay Shopping Centre (P) Tanilba Bay NSW May ,500, % 8.87% 3,840 $2,995 GWH Build Sentinel Retail Trust Gunnedah Shopping Centre (P) Gunnedah NSW May ,500, % 8.80% 5,560 $2,068 GWH Build Sentinel Retail Trust Riverlakes Village Shopping Centre Cornubia QLD Oct ,500, % 8.70% 2,812 $4,090 Private Investor Private Investor Broadmeadow Shopping Centre Broadmeadow NSW Nov ,325, ,772 $3,002 Undisclosed Diamond Property Group Castlemaine Shopping Centre Castlemaine VIC Oct ,050, % - 3,581 $3,086 Undisclosed ISPT Retail Australia Property Trust Wingham Plaza Wingham NSW Jul ,800, % 9.46% 4,366 $2,474 Private Investor Private Investor Station Square Shopping Centre Melton South VIC Jun ,450, % 7.95% 4,483 $2,331 Private Investor Private Investor Parkes Shopping Centre Parkes NSW Dec ,200, ,935 $1,285 APN Regional Property Fund Undisclosed Total 1,873,722,000

34 2014 RETAIL TRANSACTIONS IN AUSTRALIA (OVER AUD 10 MILLION) Property Name Suburb State Date Sale Price (AUD) Initial Yield (Passing) Initial Yield (Fully Leased) GLA (SQM) Price/m² Vendor Buyer Bulky Goods Centres Charter Hall - Bunnings Partnership Various Various May ,000, % % - - Bunnings Group Limited Charter Hall (BPF2) Fund 2 (BPF2) Harvest Retail (Estate One) Dandenong VIC Nov ,300, % 7.25% 18,677 $2,710 Cbus Property Rifici Group North Lidcombe Power Centre Lidcombe NSW Jun ,000, ,000 $1,444 Spotlight Retail Group Newmark APN Auburn Property Fund Bunnings Maroochydore Maroochydore QLD Jun ,125, ,000 $8,425 Bunnings Group Limited Newmark Hardware Property Trust No. 1 Lake Haven Home Mega Centre Lake Haven NSW Oct ,500, % 8.74% 21,769 $1,861 Private Investor Altis Property Partners Homeworld Tuggeranong Greenway ACT May ,000, % 11.52% 12,254 $2,530 Charter Hall PFA Diversified Property Trust Sentinel Tuggeranong Retail Trust Wendouree Homemaker Centre Wendouree VIC May ,100, % 10.13% 18,786 $1,457 Australian Unity BB Retail Capital Diversified Retail Fund Bunnings Brendale Brendale QLD Jun ,830, Bunnings Group Limited BWP Trust Bunnings Ballina Ballina NSW Oct ,300, % 6.74% 10,928 $1,949 Bunnings Group Limited Private Investor Costco Wholesale Kilburn Kilburn SA May ,750, ,000 $1,411 Axiom / Southern Cross Equity Costco Super A-Mart Auburn Auburn NSW May ,250, % 8.83% 25,100 $767 Wingdom Group Moss Capital 888 Nicholson Road Canning Vale WA Nov ,750, % - 6,585 $2,696 AV Ventures Pty Ltd Amu Shah Bunnings Hastings Hastings VIC Apr ,160, % 6.49% 9,000 $1,684 Bunnings Group Limited Private Syndicate Springwood Centre Springwood QLD Feb ,925, % 14.05% 10,289 $1,451 Centuria Property Funds Limited Sentinel Springwood Retail Trust Bunnings Sunshine Sunshine VIC Jun ,000, % 7.88% 9,958 $1,305 BWP Trust Bunnings Group Limited Officeworks, 52 Lord Street East Perth WA Oct ,925, ,500 $4,370 Undisclosed Undisclosed Bunnings Booval Booval QLD Aug ,800, % 12.07% 8,606 $1,255 Private Investor Harvey Norman Holdings 6-18 Bridge Road Hornsby NSW Oct ,700, ,053 $2,640 BB Retail Capital Undisclosed Total 637,020,000 Outlet Centres Birkenhead Point Shopping Centre & Drummoyne NSW Oct ,000, % 33,166 $9,347 Abacus Property Group / Kirsch Group Mirvac Group Marina Harbour Town Docklands Docklands VIC Mar ,000, ,000 $3,750 ING Real Estate Ashe Morgan DFO South Wharf (25%) Southbank VIC May ,600, % 7.50% 56,282 $6,226 Plenary Group CFS Retail Property Trust Group Total 547,600,000 Other Centres Fun Factory Site South Yarra VIC Feb ,000, ,600 $15,179 Peter Palan & Julian Tertini Larry Kestelman Entertainment Quarter Moore Park NSW Jun ,000, % 9.40% 51,615 $1,550 CFS Retail Property Trust Group / CFSGAM Private Consortium Property Retail Partnership (CRP) Central Brunswick Centre Fortitude Valley QLD Aug ,000, ,366 $5,498 James Power Metro Property Development Woolworths Tamworth Tamworth NSW Jul ,500, % 6.97% 6,481 $4,552 Zannes Family Everich International King Furniture Southbank VIC May ,500, AusGroup BPM Woolworths Mildura Mildura VIC Feb ,400, % 8.00% 9,160 $2,445 SCA Property Group Private Consortium Woolworths Mossman Mossman QLD Dec ,600, % 7.11% 3,947 $4,966 Woolworths (Fabcot) Private Investor Woolworths Medowie Medowie NSW Jul ,900, % 6.52% 3,865 $4,890 BD NSW Project BD075 Pty Ltd Private Investor 83 Scarborough Street Southport QLD Dec ,500, % 6.24% 2,333 $6,644 Private Investor Undisclosed King Edward Road Showrooms Osborne Park WA Oct ,000, ,459 $3,364 Undisclosed Undisclosed Woolworths Airlie Beach Airlie Beach QLD Dec ,100, % 6.95% 2,929 $4,473 Woolworths (Fabcot) Private Investor Woolworths Hawksburn Village Toorak VIC Aug ,250, % 2.84% 1,610 $7,609 Twenty Second Sherlock Pty Ltd Private Investor Greenwood Plaza (50%) North Sydney NSW Oct ,771 - Eureka Core Property Fund 1 & Eureka Core TIAA Henderson Real Estate Property Fund 3 Total 647,515,500 (P): Porftolio transaction Totals for each sub-sector include sales of AUD 5-10 million. Sale of Stockland Townsville (50%) included Kmart Centre and development land. Sale price of Brickworks Marketplace reflects the estimated on completion value of AUD 75 million, with CHRP1 acquiring and settling the land component for AUD 7.55 million in December The remaining balance is to paid upon completion in mid-2015.

35 Authors Simon Rooney Head of Retail Investments Australasia simon.rooney@ap.jll.com Simon has worked with JLL for 20 years and leads a specialist team that focuses on major retail acquisitions and disposals across Australia. He has transacted close to AUD 9 billion of retail investments over the last 36 months. Some recent transactions include the fund recapitalisation of the LLREP3 Portfolio for in excess of AUD 600 million, Birkenhead Point, NSW AUD 310 million, FDC Portfolios (50%) AUD 1.6 billion, Coles National Portfolio (75%) AUD 400 million, Erina Fair, NSW for AUD million, Westfield Doncaster, Melbourne (50%) AUD million, DFO national portfolio AUD million, Lakeside Joondalup, Perth AUD 475 million and Northland, Melbourne (50%) AUD 455 million. Simon is the recognised market leader in this field, maintaining close to 75% (approx.) market share nationally (transactions over AUD 50 million) in the Australian retail investment market. Andrew Quillfeldt Associate Director, Strategic Research Australia andrew.quillfeldt@ap.jll.com Andrew is responsible for JLL s retail property market research across Australia. His primary responsibilities include; analysis of key trends and drivers of the retail sector, reporting on market performance and providing strategic advice to the national Retail Investments and Management teams. In his dual role as Forecasting Analyst, he also assists in the production of quarterly market forecasts for the office, retail and industrial sectors. Andrew has seven years experience with JLL and holds a degree in Property Economics from the University of Technology, Sydney. Contributors Tanja Watts Retail Investments, Australia Associate Director tanja.watts@ap.jll.com Lara Britton Retail Investments, Australia Analyst lara.britton@ap.jll.com James Sherley Retail Investments, Australia Analyst james.sherley@ap.jll.com Jenny Dong Research and Consulting, Australia Senior Analyst jenny.dong@ap.jll.com