Australia

Australia

Australia is the sixth largest country in the world in terms of land area but has a relatively small population of just 23 million people from many different cultural backgrounds.  

It is prosperous and stable.  It is strategically positioned to benefit from trade links with other emerging regions in the Asia Pacific.  There are time zone advantages to Australia’s location in the Asia Pacific.  Australia’s counter-seasonality to the northern hemisphere also offers significant strategic advantages in some sectors.

It is now attracting the attention of international retailers such as H&M, Uniqlo, Sephora, Topshop+Topman and Forever 21.

ECONOMIC SUMMARY
ECONOMIC INDICATORS*2012201320142015E2016F
GDP growth 3.602.062.712.612.93
Consumer spending 2.521.662.512.902.92
Manufacturing production -1.31-1.43-1.71.952.4
Investment 8.89-2.10-2.10-1.32.6
Unemployment rate (%) 5.225.646.086.115.67
Inflation 1.762.452.491.932.96
AU$/Euro (average)0.971.041.111.331.27
AU$/Euro (average) 1.241.381.471.481.35
Interest rates 3-month (%) 3.892.782.722.562.86
10-year Aust. Govt Bond (%) 3.383.693.662.603.35

NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast
Source: Oxford Economics Ltd.

ECONOMIC BREAKDOWN
Population 23,843,428 (2015E)
GDPAUD 1,582,768 million (2014 Calendar Year)
Public sector balance -0.02% of GDP
Parliament Liberal Party & National Party (LNP)
Head of StateSir Peter Cosgrove
Prime Minister Tony Abbott
Election datesBy January 2017
RETAIL SALES GROWTH:
% CHANGE ON PREVIOUS YEAR
Australia2012201320142015E2016F
Retail Volume2.992.493.353.493.62
Retail Value3.283.375.334.125.20

Source: Oxford Economics Ltd.

LARGEST CITIES (2010)
CITYPOPULATION
Sydney4,840,000
Melbourne4,440,000
Brisbane2,274,000
Perth2,021,000
Adelaide1,304,000
ABS (Australian Bureau of Statistics)

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Sydney: -33.867487, 151.206990
Melbourne: -37.811367, 144.971829
Brisbane: -27.471011, 153.023449
Perth: -31.932854, 115.861940
Adelaide: -34.928621, 138.599959


MAJOR DOMESTIC FOOD RETAILERS

Woolworths, Coles, IGA, Foodworks, Harris Farm Markets.

MAJOR INTERNATIONAL FOOD RETAILERS

Aldi, Costco Wholesale Corporation

MAJOR DOMESTIC non-FOOD RETAILERS

David Jones, Myer, Target, Big W, Kmart, Harvey Norman, Bing Lee, Dick Smith, JB Hi Fi, Country Road, Portmans, Witchery, yd, Sportsgirl, Billabong, Rip Curl, Quiksilver, Roxy, Supre, Cotton On

INTERNATIONAL RETAILERS in Australia (a selection)

Ikea, Esprit, Kikki K, Foot Locker, Specsavers, Athlete’s Foot, Apple, Toys R Us, Topshop

Food & Beverage Operators

McDonalds, KFC, Subway, Hungry Jacks (Burger King), Red Rooster, Sumo Salad, Gloria Jean’s Coffee, Michel’s Patisserie, Boost Juice, Bakers Delight, Brumby’s Bakery, Easy Way Teas, Cookie Man, Donut King, Darrell Lea, Krispy Kreme, Lindt, Muffin Break, Oporto, The Coffee Club.

TYPICAL HOURS
MONDAY-WEDNESDAY, FRIDAYTHURSDAYSATURDAYSUNDAY
09:00-17:3009:00-21:0009.00-17.0010:00-16:00

Australia has become the latest hotspot for international retailers. According to the latest Global Powers of Retailing report from Deloitte, 15% of the world’s biggest retailers are now operating in Australia. International retailers are drawn to Australia because of its stable economic growth, rising wealth, high disposable income and the counter-cyclical nature to the northern hemisphere sale season. The arrival of offshore retail brands is expect to change the Australian retail landscape substantially, with prime retail premises being in high demand by foreign brands. In the past 4 years, the market have seen a wave of international retailers to enter Australia including Zara, Topshop + Topman, Bottega Venetta, Christian Louboutin, Diane von Fürstenberg, Gap, Mulberry, H&M, Sephora and Uniqlo. Some other brands that are actively looking include Marks & Spencer, Harvey Nichols, Cartier, Legoland, Eataly and Dean & Deluca.

There is more than 18 million sq.m. GLA of shopping centre space in the mainland states of Australia. Shopping centres are dominant in the suburbs. The concept of easy parking, a wide variety of stores, food and entertainment all in one place is attractive and these attributes have made shopping centres a destination.

Australia has a sophisticated and transparent retail property sector. The vast majority of Shopping Centres are owned by listed or wholesale property trusts. Australia is home to many of the world’s largest listed trusts such as Scentre Group (Westfield), Centro, Colonial First State Retail, Charter Hall Retail REIT, GPT, Stockland and Mirvac. They are required to continually report their dealings to the ASX. Many of the major retailers are also listed and therefore have the same requirements. Retail tenants are protected by the Retail Leases Act 1994 in NSW and variations of this in other states.

Internet Shopping has become very popular in Australia in the past few years. People are attracted to the internet for products as they are cheaper than in the stores and products from overseas such as electronics, books and apparel under AU$1,000 do not attract EST. With international retailers offering fast or free shipping and free returns there is little downside risk. Whilst supermarkets have online platforms most people go to the supermarket for groceries and alcohol. Group buying has really taken off and there are a number of these companies in the top 20 online retailers selling discounted restaurant meals, holidays, day experiences (learn to surf etc) and items.

Food and Beverage retailers have continued to thrive despite lower consumer sentiment. Coffee shops, healthy fast food outlets (in particular Subway and Sumo Salad) and the surprise performer Taiwanese Bubble Tea sellers (particularly EasyWay Tea) have all expanded exponentially in recent years.

Australia has a business friendly regulatory environment so retailers are able to enter the market directly.

New Entrants to the Market

H&MUniqloTopshop + TopmanForever 21Marks & Spencer (looking to secure space in Sydney & Melbourne)

TOP SHOPPING CENTERS BY SIZE
NAMECITYSIZE (GLA SQM) YEAR OPENED
Chadstone Shopping CentreMalvern East, VIC190,0001960
Westfield Fountain GateNarre Warren, VIC174,9001980
Westfield SydneySydney, NSW167,9752010
Highpoint Shopping CentreMaribyrnong, VIC153,9001975
Westfield ChermsideChermside, QLD150,9271957
Westfield KnoxWantirna South, VIC141,9341977
Macquarie CentreMacquarie Park, NSW138,5001981
Westfield ParramattaParramatta, NSW137,3211975

KEY FEATURES OF LEASE
ITEMCOMMENT
Lease TermsThe Retail Leases Act 1994 requires a minimum 5 year lease term. The five years can be inclusive of options. If a lease is signed for a period less than 5 years, the lease is automatically extended to 5 years by law, unless the lessee agrees to the reduced period..
Rental PaymentRents are typically payable monthly in advance. Turnover/percentage rents are increasingly seen in shopping centres and common in specialist sectors such as factory outlets, hotels and airports. A security deposit is not normally required for a tenant with a strong covenant or where a parent company guarantee or a bank guarantee is provided.
Rent ReviewMost leases will increase annually by CPI, a fixed percentage or a combination of the two. Rental reviews will occur at the option dates and “ratchet clauses” (which only allow upward increases even if the market rental rates have fallen) are prohibited by the Retail Leases Act 1994.
Service Charges, Repairs and Insurance A service charge is usually payable in multi-tenanted buildings and covers management fees, security, cleaning, landscaping, internal maintenance of common parts, external maintenance and insurance, servicing of elevators, water, heating, air conditioning and property taxes. The landlord is responsible for external/structural matters in shopping centres. The tenant is responsible for internal matters.
Property Taxes and other costs There are three government charges paid by the tenant known as statutory outgoings. The local government authority charges council rates; the State Government charges Land tax and Water Rates are charged by the utilities provider (part of the State Government). Land Tax is payable on all property which is not the owner’s primary residence. The government sets rateable value through a rolling review of unimproved land value.
Disposal of a LeaseSub-letting is usually possible under the terms of the lease, subject to landlord’s approval. Assignment rights are not normally barred in the lease but will also be subject to consent, which should not be unreasonably withheld. Early termination is only by break clause, to be negotiated at outset of lease by mutual consent upon negotiation. At lease end, the tenant is responsible for re-instating the premises to the same condition as at the start of the lease, subject to normal wear and tear. All tenant improvements must be approved by the landlord subject to the alteration covenant in the lease and the fact that approval should not be unreasonably withheld.
Valuation MethodsShops can be valued using a few different methods. One method us they are valued on a 'zoning' basis. The retail zoning principle recognises that the area at the front of the shop, adjacent to its primary window frontage is the most valuable in rental terms. For corner units, it is usual to add a small percentage to the value of the ground floor, the amount of which will depend on the degree of overall prominence. Another simpler form is capitalisation of the rental income.
LegislationThe Retail Leases Act 1994 applies to all retail business less than 1,000 sq.m. and its main purpose is to protect and inform the retailer. The landlord must offer a 5 year lease at minimum inclusive of options, though the tenant may choose to waive this right.