Revenue anchors: Anchor tenants remain
crucial despite trends towards online retail
IBISWorld Industry Report L6712b
Retail Property Operators
in Australia
June 2013
Tim Stephen
2 About this Industry
14 Major Markets
28 Revenue Volatility
2
Industry Definition
15 International Trade
28 Regulation & Policy
2
Main Activities
16 Business Locations
29 Industry Assistance
2
Similar Industries
2
Additional Resources
18 Competitive Landscape
30 Key Statistics
18 Market Share Concentration
30 Industry Data
18 Key Success Factors
30 Annual Change
18 Cost Structure Benchmarks
30 Key Ratios
3 Industry at a Glance
4 Industry Performance
20 Basis of Competition
4
Executive Summary
20 Barriers to Entry
4
Key External Drivers
21 Industry Globalisation
5
Current Performance
7
Industry Outlook
10 Industry Life Cycle
31 Jargon & Glossary
22 Major Companies
22 Westfield Group
23 CFS Retail Property Trust
12 Products & Markets
12 Supply Chain
26 Operating Conditions
12 Products & Services
26 Capital Intensity
13 Demand Determinants
27 Technology & Systems
www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com
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About this Industry
Industry Definition
The industry is made up of companies
engaged in the leasing of retail property.
Main Activities
The primary activities of this industry are
Retail property renting or leasing (as owner or leaseholder)
Retail building renting or leasing (as owner or leaseholder)
The major products and services in this industry are
Bulky goods retailer operation
Hotels, licensed clubs and pubs operation
Other retailer operation
Shopping centre operation
Similar Industries
L6711 Residential Property Operators in Australia
Businesses in this industry operate residential property.
E3021 Commercial and Industrial Building Construction in Australia
Operators in this industry construct commercial buildings.
X0004 Online Shopping in Australia
Online retailers in Australia operate websites that enable consumers to purchase a broad array of products.
L6712a Office Property Operators in Australia
Companies in this industry operate office property.
L6712c Industrial and Other Property Operators in Australia
Enterprises in this industry operate industrial and other commercial property, excluding office and retail.
Additional Resources
For additional information on this industry
www.abs.gov.au
Australian Bureau of Statistics
www.ipd.com
Investment Property Databank
www.nra.net.au
National Retail Association
www.propertyoz.com.au
Property Council of Australia
www.scca.org.au
Shopping Centre Council of Australia
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Industry at a Glance
Retail Property Operators in 2012-13
Key Statistics
Snapshot
Revenue
Annual Growth 08-13
Annual Growth 13-18
Profit
Wages
Businesses
$30.0bn -0.2%
$3.7bn
$7.5bn
Demand from retail trade
Revenue vs. employment growth
Market Share
Westfield Group
5.2%
40
4
30
2
20
% change
% change
CFS Retail
Property Trust
2.4%
10
0
0
−2
−10
−20
Year 05
3.5%
37,022
07
Revenue
09
11
13
15
17
19
−4
Year
07
09
11
13
15
17
19
Employment
SOURCE: WWW.IBISWORLD.COM.AU
p. 22
Retail establishments
Key External Drivers
6.8%
Demand from retail trade
1.1%
1.9% 1.8%
ACT
NT
TAS
30.2%
SA
10-year bond rate
Consumer
sentiment index
NSW
12.5%
WA
Demand from
online shopping
21.0%
Business confidence index
QLD
24.7%
VIC
p. 4
SOURCE:
WWW.IBISWORLD.COM.AU
SOURCE:
WWW.IBISWORLD.COM.AU
Industry Structure
Life Cycle Stage
Revenue Volatility
Mature
Medium
Regulation Level
Medium
Medium
Capital Intensity
Low
Barriers to Entry
Industry Assistance
Low
Industry Globalisation
Concentration Level
Low
Competition Level
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 30
Heavy
Technology Change
Low
Medium
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Industry Performance
Executive Summary | Key External Drivers | Current Performance
Industry Outlook | Life Cycle Stage
Executive
Summary
Poor consumer confidence, fierce
competition from online shopping and an
oversupply of retail property are the
challenges currently faced by retail
property operators. The retail property
market showed signs of improvement in
2010-11 after a soft period during the
downturn in the Australian economy.
However, retail conditions faltered in late
2011-12 as global economic uncertainty
weighed on consumer spending. This has
continued into 2012-13 with industry
revenue estimated to rise 0.9%. While
occupancy is good, due to leasing
incentives and low rental prices, property
values are flat. IBISWorld estimates
revenue for the Retail Property Operators
industry will decline slightly over the five
years through 2012-13, at a compound
annual rate of 0.1% to reach $30.0 billion.
The main problem currently facing the
industry is low demand resulting from
weak consumer confidence. This is
leading to low retail sales, which
subsequently results in low demand for
retail space. Operators have dropped
prices and offered incentives, such as
rent-free periods, but anchor tenants
such as department stores have begun
decreasing their demand for space. To
keep occupancy rates up, retail operators
are expected to forego short-term profit.
These effects have been accentuated by a
growing proportion of consumers buying
goods online, which negates the need for
retail space.
The problems will continue into the
early part of the next five years. However,
as the economy slowly rebounds, retail
spending will rise as deleveraged
consumers benefit from higher
disposable incomes and more stable
economic conditions. The oversupply of
retail space is expected to persist well
into the period, but will correct earlier if
the economy recovers ahead of current
forecasts. If this occurs, large-scale
developments will take place over the
period. IBISWorld expects the industry
will grow at a compound annual rate of
3.5% over the five years through 2017-18
to reach $35.6 billion.
Key External Drivers
Demand from retail trade
Retail sales are the main driver for the
demand of retail property space. Sales
volumes influence company and industry
revenue as well as the key property
fundamentals (rental rates, occupancy,
property values and yields). Demand
from retail trade is forecast to increase at
a modest rate over 2012-13.
10-year bond rate
Interest rates influence property
acquisition and development conditions
by affecting overall property returns. High
interest rates deter retail property
operators from borrowing to acquire or
Consumer sentiment index
Demand from retail trade
4
130
120
Index
% change
2
0
−2
−4
Year
110
100
90
07
09
11
13
15
17
19
80
Year 05
07
09
11
13
15
17
19
SOURCE: WWW.IBISWORLD.COM.AU
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Industry Performance
Key External Drivers
continued
refurbish property. Interest rates are
forecast to decrease over 2012-13,
presenting an opportunity to the industry.
Consumer sentiment index
Consumer sentiment influences retail
demand by affecting retail sales volumes.
When consumer sentiment is high,
consumers are more willing to spend and
less willing to save their income. Over
2012-13 consumer sentiment is expected
to improve as domestic and global
economic conditions strengthen.
and-mortar retailers can also be
purchased online. As consumers
continue to spend more online and less
in-store, demand for retail space
declines. Demand from online shopping
is forecast to grow over 2012-13,
representing a threat to the industry.
Demand from online shopping
Many goods purchased via bricks-
Business confidence index
Business confidence affects businesses’
decisions to invest in new locations or
expanding operations. In the retail
sector, high confidence will tend to
increase tenant demand for commercial
property. Over 2012-13 business
confidence is forecast to decline.
Current
Performance
Revenue for retail property operators in
Australia ended relatively flat over a
turbulent five years through 2012-13.
Industry revenue in 2012-13 is forecast to
reach $30.0 billion, representing growth of
just 0.9%. Industry revenue is forecast to
decline at a compound annual rate of 0.1%
over the five years through 2012-13. The
economic downturn had a particularly
adverse effect on the retail sector.
Consumer sentiment has remained poor,
as shoppers have hunted online bargains
to ease the burden on their wallets. As
retail property operators are subject to the
vagaries of retail sales, low consumer
sentiment has plagued the industry.
A troubled market
Over the past two decades retail
property has been the most lucrative
segment in the commercial property
market. Property yields have softened,
however, as a result of poor consumer
confidence and the rise of online
shopping. The industry now faces a
challenging period. While leasing
arrangements lock in a rate for the term
of the lease, a portion of income from
retail property is derived from tenant
turnover. As retailers have seen sales
drop amid troubling levels of consumer
sentiment and the rapid emergence of
online retail, property income has
declined. Consequently, many retailers
have gone out of business, and vacancy
rates have been under pressure.
IBISWorld estimates the vacancy rate
measured 5.5% in 2007-08, and this is
forecast to reach 5.8% over 2012-13. To
tackle this, retail property operators
have dropped prices and increased
Retail property vacancy rates
Year
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
Vacancy rate
5.5
5.9
5.6
4.9
5.6
5.8
SOURCE: IBISWORLD
incentives in order to lock in contracts.
The importance of anchor tenants has
grown as a result of the challenges faced
by the industry. Anchor tenants, such as
department stores and supermarkets,
draw customers to a shopping centre, and
the surrounding retailers benefit. Anchor
tenants also tend to sign longer leases, up
to 30 years, typically receiving a much
better rate. Unfortunately for retail
property operators, department stores
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Industry Performance
A troubled market
continued
have been among the hardest hit by the
financial crisis and rise of online
shopping. Other retailers within
shopping centres have struggled as a
result of department stores drawing
fewer customers to their premises.
Shopping centre rental yields are higher
than stand-alone retail stores, so declines
in shopping centre retail activity have
been particularly troubling.
Retail sales and
consumer sentiment
Retail sales are one of the main drivers of
industry revenue, due to the demand
pressure they place on retail space and
thus occupancy, rental and sales rates
and property values. While the global
financial crisis directly affected retail
sales, the historically low interest rates
and flow-through effect of the 2008-09
emergency stimulus package cushioned
the industry from the worst of the
economic downturn. Recent
improvements to employment
conditions, firm population growth,
easier access to finance, and the rise in
business and consumer confidence have
further stabilised the market. These
improvements in the economy led to
modest growth in consumer spending
and demand for retail goods and services.
While temporarily stagnant, these
conditions enabled retail trade to
continue to grow gradually.
Despite this recovery, the valueconscious consumer has emerged due to
economic uncertainty brought about by
the financial crisis. Shoppers have shifted
their focus to cheaper high-quality
products as a result of recent interest rate
rises, the increasing appeal of
international competitors due to a rising
exchange rate, online competition, the
closure of several larger retailers, a
flood-induced food price spike and
intended tax rises (such as the natural
disaster levy and carbon tax). Mid-quality
products have dropped in relative
popularity as a result. Venues that attract
retailers at the two ends of the spectrum
have been showing growth, with eight
outlets sold worth an estimated $1.0
billion in 2010. Luxury retailers are
seeking to relocate to larger properties,
and shopping centres have displayed a
stronger focus on their luxury precincts.
This trend is evidenced by recent
renovations at Chadstone, VIC in 2010
and the opening of Westfield Sydney in
April 2011. Growth in discretionary sales
is likely to result in increased investment
into a range of retail properties as
economic conditions continue to improve.
Spending patterns still link strongly to
non-discretionary items, with food
retailers comprising 35% to 40% of total
retail revenue. Food retailers consistently
produced steady annual returns
throughout the global financial crisis, and
this trend is expected to continue as the
economy improves. More recently, amid
emerging signs of life, consumer
confidence again dipped due to continued
concerns over our local economy.
Property expansion
pitfalls
The global financial crisis revealed that
several players in retail had sought to
expand too eagerly during the previous
boom. Even now, retailers are having
these choices catch up with them, with
some ending in receivership, such as
Centro and Austexx (part of the Direct
Factory Outlets group). Their expansive
activities have pushed both companies
into damage control and recovery mode.
While all Australian properties related
to both companies have been salvaged,
these expansion activities have led to an
oversupply of retail property, falling in
line with demand since the global
financial crisis, with institutional owners
acquiring several properties as a
defensive investment and to overtake
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Industry Performance
Property expansion
pitfalls continued
private investors in terms of market
share. This newfound demand has tended
towards smaller properties. The
oversupply of retail property has led to
lower yields on space and more
incentives being offered, such as free rent
periods or discounted fees, especially for
anchor tenants.
The bottom line
An oversupply in conjunction with low
demand and slow retail activity has
dropped rental yields. Property values
have been more or less stagnant as
market confidence resulted in
deleveraging and low sales volumes. The
result has been a drop in industry profit.
In the five years through 2012-13,
IBISWorld expects that industry profit
will average just 9.7%. This represents a
substantial drop in profitability
compared with the previous five years, in
which returns were estimated to have
averaged over 20%.
Industry
Outlook
The Retail Property Operators industry
faces significant challenges in the short
and medium term, not the least of which
is the industry’s reliance on the
performance of Australia’s struggling
retail sector. Industry revenue is forecast
to grow at a compound annual rate of
3.5% over the five years through 2017-18.
By this time, industry revenue is forecast
to reach $35.6 billion. Retail property
operators are expected to benefit from
rebounding consumer sentiment,
improving supply conditions and
appreciating property values. The
industry is poised to enter the next five
years in a precarious position. Although
vacancy rates are low, a struggling retail
sector in conjunction with an oversupply
of retail space will threaten property
yields over 2013-14 and 2014-15.
Rebounding
confidence
The number one issue facing retailers
heading into the next couple of years will
be consumer confidence. Sentiment is
expected to remain subdued due to
uncertainty surrounding the eurozone
and the struggling US economy.
Consumers are also concerned over
Australia’s two-speed economy, and what
the result might be should Chinese
demand for Australian resources decline.
However, sentiment is expected to rise as
the economy is buoyed by the improving
performance of sectors outside of mining,
Industry revenue
40
% change
30
20
10
0
−10
−20
Year 05
07
09
11
13
15
17
19
SOURCE: WWW.IBISWORLD.COM.AU
led by services.
As retailers begin to reap the benefits
of growing confidence, demand for space
will pick up. The current oversupply of
retail space has led to declining yields, as
retail property operators have attempted
to keep vacancy low by dropping prices
and increasing leasing incentives. This
will continue while the oversupply exists,
but as it corrects, rental rates, property
values and yield rates are expected to
grow. Asset values across the retail
market have been flat, but are expected to
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Industry Performance
Rebounding
confidence
continued
begin to tick up slowly in the near term.
The effect of rebounding values and more
healthy yields will be reflected in the
bottom line. The industry as a whole is
expected to return to a healthy level of
profitability as a result of more
favourable conditions. Over the five years
through 2017-18, IBISWorld estimates
industry profit will average 16% of
revenue, and this is expected to peak in
2015-16 or 2016-17 as demand erodes
oversupply problems, and tenant
turnover results in higher income per
square metre.
Future of physical
retail
The success or failure of retail property
operators will always depend heavily on
the performance of their tenants. The
woes of local retailers have been well
publicised. Over the next five years,
retailers will face consumers that are
cautious, lacking confidence and more
inclined to save rather than spend. When
they do spend, they are looking to
maximise value, and this will often mean
comparing bricks-and-mortar prices to
online prices. Additionally, while
employment is expected to remain
healthy over the next five years,
disposable income growth is forecast to
remain subdued. That being said,
increasing consumer confidence, a
growing propensity to spend and higher
levels of disposable income are expected
in the not too distant future. These
drivers of retail growth are cyclical in
nature, and will return to favourable
levels from 2013-14 to 2014-15. The
benefits of increased spending to physical
retailers, however, will be mitigated by an
increasing proportion of consumers
choosing to shop online, as it is often
cheaper, more convenient and often
provides more range. The amount of
money spent online in Australia is
forecast to grow at a compound annual
rate of 6.7% in the five years through
2017-18, faster than the overall retail
sector, indicating the proportion of
spending being done in-store is declining.
Retail property operators will need to
be more selective than ever when
arranging leases. The mix of retailers
selected is crucial, providing both a
threat and an opportunity to retail
property operators. Some industries
within the retail sector will be more
heavily affected than others by the rise of
online spending. Department stores,
typically anchor tenants for large
shopping centres, are expected to
perform poorly. Many have already
announced plans to reduce leased space
and lock in more flexible arrangements,
and this is expected to continue through
the medium term. This is boosted also by
more efficient warehousing and stock
ordering systems that result in retailers
requiring less stock in their stores.
Clothing retailers are also expected to be
hit hard, with more consumers choosing
to buy clothing online. Australia’s
Clothing Retailing industry is forecast to
grow at a compound annual rate of just
1.1% in the five years through 2017-18.
Leasing arrangements A number of changes are likely to take
place in regards to leasing arrangements
over the next five years. The Productivity
Commission’s inquiry into the economic
structure and performance of Australian
retail, released November 2011, reached
some interesting conclusions regarding
retail property leases. A survey of
retailers showed concern over the
limited negotiating power of a small
specialty retailer in comparison to a
multi-billion dollar property fund.
Concerns remain over the fact that
standard lease terms are too short, not
allowing for business security and time
to depreciate and amortise business
assets. Additionally, the inquiry reported
a lack of information surrounding
shopping centre rents. Concerns have
also been raised over the flexibility of
Retail Property Operators in AustraliaJune 2013 9
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Industry Performance
Leasing arrangements leases, and the ability to adjust a lease to
react to market conditions. Changes to
continued
formal regulation are expected in the
next five years, and are likely to focus on
transparency and education.
Research into the retail tenancy
market has led to certain
recommendations. Many of these, if
implemented, would benefit both
retailers and retail property operators.
Over the next five years, there are
expected to be initiatives directed at
increasing data collection on the
Australian retail tenancy market, and
transparency in access to this
information. The ability to access and
analyse this would allow both parties to
enter a leasing agreement with more
information and more confidence. It is
also expected that states and territories
will be encouraged to harmonise
legislation surrounding retail leases.
Retail Property Operators in AustraliaJune 2013 10
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Industry Performance
Life Cycle Stage
Industry growth is highly dependent
on underlying economic growth
There is no appreciable increase in the number
of large players entering the industry
% Growth in share of economy
New product offerings can drive
demand for retail properties
20
Maturity
Quality Growth
Company
consolidation;
level of economic
importance stable
High growth in economic
importance; weaker companies
close down; developed
technology and markets
15
Key Features of a Mature Industry
Revenue grows at same pace as economy
Company numbers stabilise; M&A stage
Established technology & processes
Total market acceptance of product & brand
Rationalisation of low margin products & brands
10
Quantity Growth
Many new companies;
minor growth in economic
importance; substantial
technology change
5
Retail
Property
Operators
0
Plumbing Services
Electrical Services
Residential Property Operators
Consumer Goods Retail
Commercial and Industrial Building Construction
Decline
-5
Shrinking economic
importance
-10
-10
-5
0
5
10
15
20
% Growth in number of establishments
SOURCE: WWW.IBISWORLD.COM.AU
Retail Property Operators in AustraliaJune 2013 11
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Industry Performance
Industry Life Cycle
This
industry
is M
ature
Industry growth is highly correlated to
underlying economic growth. As the
economy prospers, high consumer
confidence results in demand for retail
goods, which in turn results in demand
for retail space. Conversely, when the
economy is performing poorly
disposable income drops and people
favour saving, reducing demand for
retail goods and retail space. In the ten
years through 2017-18, Australia’s GDP
is forecast to grow at a compound
annual rate of 2.4%. Industry valueadded, a measure of the industry’s
contribution to the overall economy, is
forecast to grow at 3.1% over the same
period. This is more or less in line with
GDP and indicative of an industry in a
mature phase of its life cycle.
There appears no appreciable increase
in the number of players entering the
industry, mainly due to the large startup costs. There has been growth of
property trusts and the emergence of
property syndicates, which allow
individuals to pool their resources to
acquire property. No player has a
significant share of the overall market,
although in some localised markets and
in some asset classes concentration can
be relatively high.
Innovations in property and finance
markets, such as real estate investment
trusts (REIT’s), can produce new
investment opportunities and increase
the demand for retail properties. While
interactive technologies may have an
adverse effect on the future demand for
retail accommodation, such as an
increase in retail activity over the
internet, this is not expected to lead the
industry to a period of long-term decline.
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Retail Property Operators in Australia June 2013 12
Products & Markets
Supply Chain | Products & Services | Demand Determinants
Major Markets | International Trade | Business Locations
Supply Chain
KEY BUYING INDUSTRIES
G4200
Consumer Goods Retail in Australia
Retailers are major users of retail property.
H
Accommodation and Food Services
This sector is a major user of retail property and specialised property.
K6200
Finance in Australia
Companies involved in finance are users of retail property.
KEY SELLING INDUSTRIES
Products & Services
E3231
Plumbing Services in Australia
Retail properties require plumbing installation, and maintenance and repair.
E3232
Electrical Services in Australia
Retail properties require electrical installation, and maintenance and repair.
E3233
Air Conditioning and Heating Services in Australia
Retail properties require air conditioning and heating.
E3244
Painting and Decorating Services in Australia
Retail properties require painting.
K6221a
National and Regional Commercial Banks in Australia
This industry supplies finance to retail property operators.
K6322
General Insurance in Australia
General insurance is provided for retail property operators.
L6720
Real Estate Services in Australia
Real estate agents work for retail property operators.
M6931
Legal Services in Australia
Property conveyance and tenancy agreement preparation is required by retail property
operators.
N7311
Building and Other Industrial Cleaning Services in Australia
Cleaning services are required for retail properties.
Retail properties are a diverse property
class. Retail premises range from single
shopfronts in traditional strip locations
to fully contained regional, suburban or
city shopping centres, bulky goods depots
and hotels and licensed clubs and pubs.
IBISWorld estimates that shopping
centres, bulky goods retailers and other
retailers account for the majority of
revenue, with a combined market share
estimated at 79.5% of the total. The
remaining hotels, licensed clubs and pubs
are estimated to comprise the remaining
20.5% of the total.
Shopping centre operation
Shopping centres are estimated to be the
largest retail property class, with 41.0% of
total revenue. Over the past 25 years, these
outlets have become an increasingly
important part of Australia’s retail sector.
In more recent years, the exploding
popularity of online shopping has brought
about some benefits to shopping centres.
Larger centres that are anchored by a large
store specialising in nondurables, such as a
supermarket, have performed better than
stand-alone bricks-and-mortar retailers.
As nondurables are less likely to be
purchased online, people have continued
to be more likely to shop at physical
locations for such goods, benefiting other
retailers if they are located within the same
shopping centre. Specialty retailers have
been the best performing segment in most
shopping centres portfolios.
Other retailer operation
Other retailers generate a significant
proportion of total retail revenue. Largely
comprised of single shopfronts in
traditional strip locations, this segment has
WWW.IBISWORLD.COM.AU
Retail Property Operators in Australia June 2013 13
Products & Markets
Products & Services
continued
only marginally increased its overall
proportion of market share over the past
five years (1.0% aggregated). This is due to
the convenience of shopping centres, which
provide a variety of retailers under one roof.
Bulky goods retailer operation
Bulky goods retailers include large
consumer goods retailers, such as
whitegoods and electronics. This
segment, although declining slightly, is
estimated to be the second largest for
the industry. When falling within a
shopping centre these retailers tend to
do better, as the benefits of a shopping
centre (given it has a range of stores and
is often anchored by a supermarket)
mean the stand alone bulky goods
retailers have suffered more than other
retail segments. In addition, competition
from online retail and poor consumer
sentiment have also added to this
segment declining as a proportion of
industry revenue.
Products and services segmentation (2012-13)
8.5%
Other retailer operation
20.5%
Hotels, licensed clubs
and pubs operation
41%
Shopping centre operation
30.0%
Bulky goods
retailer operation
Total $30.0bn
Demand
Determinants
The demand for retail property and store
space in a market is largely dependent on
household demand for goods and
services. This is driven by a range of
range of economic and demographic
factors that influence household
consumption patterns and retail sales
volumes across different product lines.
A major factor influencing the demand
for retail property is population size.
Population size drives the quantity of
retail sales and consumer expenditure
volumes in a region, which, in turn,
affects total rental demand and store
sizes. The total number of households
and household sizes similarly influence
consumption volumes, with some
purchases being household-related as
opposed to individually based.
The demographic composition of an
area’s population in terms of age, sex,
SOURCE: WWW.IBISWORLD.COM.AU
income and debt levels influences the
demand for various types of retail
products by affecting both spending
patterns and the types of purchases
made. When combined with consumer
preferences, which further influence
retail purchases, this can influence the
demand for retail properties in a region.
In addition to demographic factors, a
range of economic factors can influence
retail demand. The provision of
government assistance (e.g. the Federal
Government’s stimulus package) and
changes to interest rates can alter spending
patterns. Furthermore, changes to
employment levels, access to finance, and
general economic conditions can alter
business and consumer confidence. The
resulting level of confidence consequently
affects consumption patterns, sales
volumes and investment in retail business.
WWW.IBISWORLD.COM.AU
Retail Property Operators in Australia June 2013 14
Products & Markets
Major Markets
Australia’s retail buyers market is
comprised of three main retail groups:
food retailers, hospitality and service
industries and household goods retailers.
Recently this breakdown has shifted
more towards specialty retailers, as these
have proven least susceptible to
challenges posed by online retail and the
strong Australian dollar. The clothing
and footwear retail and department store
markets have both decreased as a market
for retail property operators due to the
strong Australian dollar spurring heavy
competition from online retail, being
combined with low levels of consumer
confidence.
Food retailers
Accounting for an estimated 36.8% of the
retail market, the food retail segment is
largely dominated by supermarkets and
grocery stores. Supermarkets and grocery
stores comprise about 30% of total
industry revenue and over 80% of total
food retailer revenue. This sector has not
only remained the principal buyer of
goods in Australia, but has increased its
market share over the past five years. The
growth in supermarkets has been driven
by the convenience offered to consumers
through the all-in-one shopping
experience, the price competitiveness of
the major chains based on their
economies of scale and the extended
variety of products that supermarkets
have on offer, relative to other specialised
food retailers. Additionally, consumers
have proven less willing to shop online
for nondurables such as groceries,
preferring to touch and choose things at a
physical store. The growth in
supermarket revenue has ensured that
the food retailers segment has remained
the largest retail market and increased as
a proportion of the industry’s total
market.
Hospitality and service
The hospitality and service segment is the
second largest retail property market,
with an estimated 19.8% of total market
share. This segment is comprised of the
cafe, restaurant and takeaway food
service groups and hotels, clubs and
pubs. Despite fluctuations in yearly
revenue growth (between 2% and 9%),
the hospitality and service group has
maintained its share of the market over
the past five years. This group is expected
to continue being an important part of
the retail market, with discretionary
spending patterns and economic
conditions improving slowly and
downstream consumer demand for cafes,
restaurants and hotels firming.
Household goods retailers
Household goods retailers account for a
considerable proportion of the retail
market. Consisting of 16.3% of market
share, this group is made up of furniture,
electrical and hardware suppliers. While
Major market segmentation (2012-13)
7.4%
Clothing and
footwear retailers
12.5%
7.2%
Department stores
36.8%
Food retailers
Other retailers
16.3%
Household goods
retailers
Total $30.0bn
19.8%
Hospitality and
service industries
SOURCE: WWW.IBISWORLD.COM.AU
WWW.IBISWORLD.COM.AU
Retail Property Operators in Australia June 2013 15
Products & Markets
Major Markets
continued
the global financial crisis negatively
affected this group in terms of revenue
growth, it maintained its status as a major
retail property user, with its share of the
market reducing by about 1.0% over the
past five years. This retail segment was
aided by the introduction of the First Home
Owner Grant and lowering of interest rates
through 2009-10, which supported
household sales volumes and the continued
importance of household products as part
of consumer spending patterns.
International Trade
The extent to which domestic companies
invest in foreign industrial assets varies
by company. It is dependent on
individual company strategies as well as
economic, financial and general property
market conditions outside of Australia.
Up until the start of the economic crisis,
Australian-controlled property
companies and trusts were increasingly
investing in overseas property. This was
a result of particularly strong
international economic conditions. It
was also because of growth in retail
property rental rates, occupancy and
capital values across Europe, North
America and the United Kingdom.
This trend has recently reversed, with
Australian companies currently retaining
a larger proportion of assets domestically.
This is largely a result of the effects of the
global financial crisis, which reduced
company returns and profit and resulted
in companies consolidating their
portfolio’s and focusing primarily on core
domestic real estate assets. Non-core
assets were largely sold, especially those
in America, the United Kingdom and the
majority of Europe, where property
values, occupancy and rental rates are
still decreasing.
Retail Property Operators in AustraliaJune 2013 16
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Products & Markets
Business Locations 2012-13
NT
1.1
QLD
21.0
WA
12.5
SA
6.8
NSW
30.2
ACT
1.8
VIC
24.7
Retail establishments (%)
Cold Zone (<10)
<25
<50
Hot Zone (<100)
Not applicable
TAS
1.9
SOURCE: WWW.IBISWORLD.COM.AU
Retail Property Operators in AustraliaJune 2013 17
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Products & Markets
Distribution of retail establishments vs.
population
40
30
20
10
WA
VIC
TAS
SA
QLD
NT
NSW
0
ACT
IBISWorld estimates that there are
almost 49,000 retail property operators
in Australia. These operators extend
throughout the country. The majority of
retail revenue, however, is earned across
three main states. New South Wales,
Victoria and Queensland account for the
largest market shares, with 30.2%, 24.7%
and 21% respectively. The remaining
states and territories comprise 24.1% of
total establishments.
The regional distribution of Australia’s
retail establishments is largely a
reflection of population demand
pressures, with New South Wales,
Victoria and Queensland consisting of
about 77% of the nation’s residents.
Because of this, future growth in
establishments is expected to mostly
follow regional population movements.
Throughout 2012-13, Perth, despite
direct prosperity from the mining boom,
has seen its retail environment suffer due
to national offices being on the east coast,
where consumer spending is more
subdued. Retail strips have been
particularly damaged in terms of property
demand. However, demand for retail
property has instead shifted towards
neighbourhood centres instead in the state.
In order to bring demand back towards the
CBD, the City of Perth is developing its
laneways as well as spending $2 billion on
the Perth City Link Project, which aims to
bring boutique office, retail and residential
tenants to the CBD by 2016.
In recent years the industry has seen a
strong gravitation on the east coast
towards demand for retail property in
CBDs. Melbourne, for example, has seen
Percentage
Business Locations
Retail establishments
Population
SOURCE: WWW.IBISWORLD.COM.AU
a rise in demand for laneway retail
property thanks to its comparatively
lower price than shopping centres but
nonetheless provide a high-density
surrounding which allows easy access for
many potential customers.
Within CBD areas, particularly in
Sydney, there is a growing concern that
while they have been able to adjust more
easily to demand for retail property
(compared to shopping centres), this is
being hampered by growing
inaccessibility due to council parking
restrictions. Anchor property like
supermarkets restricts parking to two
hours, while street parking is now
increasingly metered. Melbourne with its
superior public transport system has
helped reduce the impact of this barrier;
however, it remains a concern.
Retail Property Operators in AustraliaJune 2013 18
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Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks
Basis of Competition | Barriers to Entry | Industry Globalisation
Market Share
Concentration
Level
Concentration
in
this industry is L ow
Key Success Factors
IBISWorld
identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:
Cost Structure
Benchmarks
IBISWorld estimates that the four largest
operators account for an estimated 10.8%
of the industry. The remainder of the
Retail Property Operators industry
consists of individual investors, property
syndicates and smaller property groups
and trusts. This indicates that the market
is not dominated by any individual
company, but is rather driven by many
different players.
Concentration levels had been slowly
increasing up to 2007-08. However, the
advent of the global financial crisis can be
seen to have had an impact on the
market. The market share of the four
largest players reduced from 11.2% in
2008-09 to 9.9% in 2009-10, before
rebounding back towards their previous
level as the economy stabilised.
Concentration is expected to grow over
the next five years as more retailers look
to take risky property assets off their
balance sheets in favour of renting.
While overall industry concentration
is low, in the shopping centre property
segment it is much higher. This is
unsurprising given the large
investment required to develop and
manage a shopping centre that may
house over a hundred retailers.
Between the big Australian real estate
investment trusts (A-REITs),
competition is fierce. Some specialise
in retail property, while others invest
in commercial property, and others
commercial and industrial.
Financial structure of the company
A strong balance sheet and access to
funds allows companies to respond to
changing economic conditions.
Management of a high
quality assets portfolio
The effective management of assets and
tenants enables landlords to maintain
high occupancy rates.
Market research and understanding
The thorough analysis of economic,
demographic and property market
conditions provides companies with an
overview of the industry. This allows them
to effectively target opportunities and
manage slowing economic conditions.
In assessing the cost structure of retail
property operators, the average costs for
the typical owner of retail property is
skewed by the fact that the type of
investor can differ greatly. For example,
the cost structure for a large, diversified
A-REIT will differ greatly from that of a
small investor. However, the primary
costs involved for all investor types tend
to be wages and costs associated with the
acquisition of the property.
Labour costs
Wages represent the single largest cost to
retail property operators, representing an
estimated 24.9% of revenue. The industry
Ability to effectively
communicate and negotiate
It is important to have a strong
negotiating position with tenants, and to
effectively communicate purchase and
lease arrangements.
requires labour that is skilled in
marketing, sales, administration and
property analysis, and consequently, this
is also reflected in the relatively high
average wage. Property management and
administration requires labour for
procuring and retaining tenants,
collecting rent, maintaining the building
and its services, and paying outgoings.
Property acquisition expenses
Another large cost to the industry is the
acquisition of investment properties.
Accounting for an estimated 17.3% of
revenue, this cost includes the selling
price of the asset along with stamp duty,
Retail Property Operators in AustraliaJune 2013 19
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Competitive Landscape
land tax and associated legal fees. An
expense that is directly linked to the
purchase of investment properties is
finance fees. These outlays vary across
the major industry players, but on
average make up an estimated 14.4% of
revenue. Both finance and acquisition
expenses are expected to have declined as
a result of tentative investors and
declining interest rates. The current low
interest rate environment is expected to
result in lower acquisition costs, partially
offsetting stagnant rental yields.
Profit
While costs are anticipated to account for
the majority of revenue in 2012-13, profit
(measured using EBIT) will comprise the
remainder, estimated at 12.4%.
IBISWorld expects total industry profit
will experience growth, though marginal,
in 2012-13. This is largely a result of
retail sales growth expected for the year
and strong occupancy rates. Profit for the
current year is forecast to be well below
that achieved at the peak of industry
performance. In the five years prior to the
economic downturn, industry
profitability was estimated to measure
22.9%, compared to just 9.7% achieved
on average in the five years through
2012-13. Pushing profit down further has
been weak rental income on the back of
Australia’s flailing retail sector, with sales
suffering due to competition from online
retail and low consumer sentiment.
Declining profit has been a major factor
in many larger players shedding weaker
assets and focusing on a core market.
Companies in the industry incur
various additional costs that affect their
daily operation. These expenses include
marketing, depreciation, utilities, rent
and other miscellaneous costs.
Sector vs. Industry Costs
Average Costs of
all Industries in
sector (2012-13)
Industry Costs
(2012-13)
100
25.5
1.5
80
2.1
Percentage of revenue
Cost Structure
Benchmarks
continued
60
2.7
12.4
2.2
0.7
39.8
1.9
■ Profit
■ Rent
■ Utilities
■ Depreciation
■ Other
■ Wages
■ Purchases
29.7
40
19.1
24.9
20.3
17.3
20
0
SOURCE: WWW.IBISWORLD.COM.AU
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Competitive Landscape
Basis of Competition
Level & Trend
ompetition
C
in
this industry is
Mediumand the
trend is S
teady
Barriers to Entry
Level & Trend
arriers to Entry
B
in this industry are
Mediumand S
teady
The level of competition in the Retail
Property Operators industry is
principally based on the acquisition and
management of retail properties. To
obtain a competitive advantage in the
retail industry, a range of strategies is
taken by operators to ensure their
probability of success.
One strategy used by property
operators to gain a competitive advantage
in the retail industry is through market
research and analysis. Companies with
sound market research and analysis
capabilities are able foresee economic
changes, identify gaps in the market and
target sound investment opportunities.
This positions them with the ability to
acquire quality assets, which drives
company revenue streams and profit
though the growth in capital values,
rental rates and strong occupancy rates.
Retail property operators are able to
become more competitive through
The Retail Property Operators industry
has several barriers that can prevent new
companies from establishing. The largest
barrier to new property operators is entry
costs. In the retail property market, this
includes the costs associated with
financing and acquiring property assets as
well as the initial marketing, development,
advertising and research expenses. Direct
investment in prime property assets
requires significant financial resources
and often prevents new entrants from
establishing themselves in the market.
Zoning regulations can also be seen as
a barrier to entry. Typically controlled by
the local governing body, zoning
regulations are relatively universal. Each
local council has different rules and
regulations regarding zoning. Zoning
controls the physical development of
attracting suitable tenants. Rental
income from property operations is the
primary revenue generated by retail
property operators. Marketing costs and
loss in revenue, through site vacancy,
greatly influence the profitability of
companies. Consequently, it is
important for operators to attract
tenants through competitive pricing
strategies, lease lengths and incentives
if necessary and retain them on
favourable terms through effective
management of properties.
Furthermore, property operators with
significant financial backing, credit
ratings and fund raising abilities are able
to be more competitive as they are able to
commit more resources to analyse
market conditions and identify
opportunities, purchase high-value
properties in prime locations, secure
major corporate tenants, and build and
market major new developments.
Barriers to Entry checklist
Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance
Level
Medium
Low
Mature
Low
Medium
Heavy
Low
SOURCE: WWW.IBISWORLD.COM.AU
land, determining which uses may be
allocated to each property site. Besides
restricting land and building uses, zoning
laws also may regulate the dimensional
requirements and the density of a
development and therefore can act in
limiting the availability of suitable land
for retail development.
Retail Property Operators in AustraliaJune 2013 21
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Competitive Landscape
Industry
Globalisation
Level & Trend
lobalisation
G
in
this industry is
Lowand the trend
is I ncreasing
While Australian companies own assets
internationally, the majority of property
investments are made domestically.
Australian companies are currently
retaining a larger proportion of assets
domestically. This is largely due to the
effects of the global economic downturn,
which are still affecting international
retail property, particularly throughout
Europe and North America. The
Australian market on the other hand has
stabilised, with rental rates, occupancy
and capital values improving since
2008-09. As a result, Australian
companies have sold non-core
international assets, such as those in the
US and UK, and increased their
investment in domestic properties since
the global financial crisis. Due to the
economic instability in North America
and Europe in the wake of the global
economic downturn, Australia also
emerged as a popular investment location
for international property purchasers.
Retail Property Operators in AustraliaJune 2013 22
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Major Companies
Westfield Group | CFS Retail Property Trust | Other Companies
Major players
(Market share)
CFS Retail Property Trust 2.4%
92.4%
Other
Westfield Group 5.2%
Player Performance
Westfield Group
Market share: 5.2%
SOURCE: WWW.IBISWORLD.COM.AU
Westfield commenced operating in 1959,
but it was not until July 2004 that the
Westfield Group was born with the
merging of Westfield Holdings Ltd,
Westfield Trust and Westfield America
Trust. Today, the Westfield Group is one
of the largest listed retail property groups
worldwide, with operations in Europe,
South America, North America and
Oceania. The group undertakes a range of
activities including design, development,
construction, ownership, and property
management. Westfield operates over 40
shopping centres and around 11,885
retail outlets across Australia.
In November 2010, the group
announced the formation of Westfield
Retail Trust, which has been given a
50.0% stake in Westfield’s Australian and
New Zealand operations, allowing the
group to focus on developments and
acquisitions. During 2011, the company
entered both the Italian and Brazilian
retail property markets through two joint
ventures. More recently, in a deal with
AMP Capital (Westfield Group partners
in the 50:50 joint ownership of Westfield
Retail Trust), Westfield Group paid
$344.0 million for the acquisition of
minority interests in several Australian
shopping centres, while also receiving
payment of $547.0 million for the sale of
various interests in other Australian
shopping centres.
In April 2013, Westfield announced
commencement of a $400.0 million
redevelopment of Westfield Garden City
shopping centre in Mt Gravatt, QLD. In
May, Westfield announced a $435.0
redevelopment of Westfield Miranda,
NSW. Each of these projects reflects the
company’s strategy of increasing the
quality and value of existing holdings. As
at May 2013, Westfield Group had $12.0
billion in pipeline developments.
Financial performance
Despite the company spinning off the
Westfield Retail Trust, for the purposes
of this analysis the retail property
activities of both Westfield Group and
Westfield Retail Trust are combined.
Although profit for Westfield has
fallen, conditions are stabilising. The
Westfield (Australian retail property) – industry segment performance
Year*
Revenue
($ million)
(% change)
Assets
($ billion)
(% change)
Operating
Profit
($ million)
(% change)
2008
1,569.1
4.8
20.88
3.9
1,318.8
N/C
2009
1,725.6
10.0
20.69
-0.9
1,296.7
-1.7
2010
1,796.3
4.1
22.63
9.4
1,337.4
3.1
2011
1,434.2
-20.2
24.30
7.4
1,356.1
1.4
2012
1,547.5
7.9
26.92
10.8
1,132.8
-16.5
2013 **
1,617.1
4.5
27.94
3.8
1,229.5
8.5
*Year end December **Estimate
SOURCE: ANNUAL REPORT AND IBISWORLD
Retail Property Operators in AustraliaJune 2013 23
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Major Companies
Player Performance
continued
group has maintained vacancy rates at
better than the industry average, with
upwards of 99% of Australian
properties occupied. Nonetheless, the
performance of its Australian portfolio
has been dampened by the sluggish
property market. In the five years
through December 2013, Westfield’s
retail portfolio is expected to grow in
value at an annualised 6.0% with
Australian property operation revenue
forecast to grow at a modest 0.6%
annualised over the same period. This
reflects declining rental prices due to
continuing poor retail sales
performances. Net property returns
have remained fairly healthy, hovering
between 4% and 7% of assets.
Player Performance
CFS Retail Property Trust Group (CFX) is
a retail sector-specific real estate
investment trust. Listed on the ASX in
1994, as at December 2012 the trust held
a portfolio of 29 retail assets located
across Australia, valued at $8.5 billion.
Key investments include Direct Factory
Outlets (DFO) centres across Victoria and
New South Wales, Chatswood Chase in
Sydney, Queensplaza in Brisbane and
Chadstone Shopping Centre in
Melbourne. Since its establishment, CFX
has expanded through the development
of existing properties and the acquisition
of further shopping centres.
In October 2010, CFX finalised its
purchase of the troubled retail assets of
Austexx, in the form of a $498.0 million
deal to acquire four DFO centres. To fund
the purchase, CFX undertook a $540.0
million equity sale.
In May 2012, CFX proposed stapling
the units of CFX with units in a new trust
to be used to explore non-rental returns
on the trust’s investment properties. The
restructure was approved and the stapled
units of CFX and CFX2 began trading in
June 2012. The new entity was designated
CFS Retail Property Trust Group.
CFS Retail Property
Trust
Market share: 2.4%
Financial performance
The global economic downturn
adversely affected the trust, with the
commercial property market in Australia
experiencing major value adjustments in
the midst of a horrid period for retail.
Cautious consumer spending and the
high Australian dollar have been stated
as the main concerns behind poor retail
performance within the group’s
portfolio, with retail sales growth of
leaseholders measuring just 0.5% in
2011-12. While the group’s specialty
retail tenants have recorded stronger
growth, anchor tenants, such as
department stores, discount department
stores and supermarkets, performed
poorly. High-end fashion and
international retail tenants have also
exhibited high demand for space, and
the group has adjusted development
plans accordingly. Over the five years
CFS Retail Property Trust Group – financial performance
Revenue
($ million)
(% change)
Assets
($ billion)
(% change)
2007-08
535.0
-27.4
6.94
12.9
2008-09
546.0
2.1
7.10
2.3
2009-10
611.2
11.9
7.49
5.5
2010-11
695.2
13.7
8.23
9.9
2011-12
727.2
4.6
8.28
0.6
2012-13*
725.0
-0.3
8.45
2.1
Year
*Estimate
SOURCE: ANNUAL REPORT
Retail Property Operators in AustraliaJune 2013 24
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Major Companies
Player Performance
continued
through 2012-13, revenue is forecast to
grow at an annualised 6.3%, better than
the overall industry. Over the same time,
the company’s retail portfolio is forecast
to grow at an annualised 4.0% to reach
$8.5 billion. Asset valuations are
expected to improve modestly with
vacancy rates expected to remain low.
Other Companies
Outside of the major players, a wide
variety of investors hold stakes in retail
property. However, other notable players
tend to be A-REITs, which use investor
funds for large property investments.
Other large retail investors not listed
below include AMP Capital Investors,
DEXUS, Lend Lease and Charter Hall.
acquisition was to continue diversifying
more towards office and industrial
investments and that the move would not
greatly affect retail property market
share. However, talks fell through in
early 2013 when the parties could not
agree on a price. GPT stated that it will
return its focus to organic growth, and in
early 2013 GPT completed $300.0
million of redevelopments at Highpoint
Shopping Centre, Victoria. Meanwhile,
Australand is still looking for a buyer for
its commercial and industrial assets.
GPT Group
Estimated market share: 1.7%
Listed on the ASX in 1971, the GPT Group
is now one of Australia’s largest listed
diversified property groups. GPT’s core
assets include Australian-based retail,
office, industrial and business park units,
as well as funds under management. GPT’s
Australian retail portfolio includes
ownership interests in 17 shopping centres.
As with other retail investors, sales for
GPTs shopping centre tenants are slow.
In the year to September 2012, total
portfolio tenant sales grew at just 0.8%,
while showing signs of improvement over
that period. Anchor tenants, such as
department stores and supermarkets,
have performed especially poorly, while
specialty sales have been more resilient.
Occupancy is on the rise, at 99.7% for the
retail portfolio. GPT’s retail portfolio is
valued at $4.9 billion, as of March 2013.
The total value of the group’s retail
investment assets is growing steadily. In
June 2012, the GPT divested interests in
Westfield Woden in Canberra and
Casuarina in Darwin for total
remuneration of $551.2 million. In the
five years through December 2012, total
retail property assets have grown at a
compound annual rate of 1.5%. In
December 2012, GPT Group announced a
non-binding proposal to acquire the
commercial and industrial property
investments of Australand. The business
holds assets of approximately $430.0
million. GPT stated the reason for the
Federation Centres
Estimated market share: 1.5%
Previously Centro Retail Australia,
Federation Centres (FDC) is the
amalgamation of Centro Retail Trust,
Centro Retail Limited, Centro Australia
Wholesale Fund and Centro DPF Holding
Trust. The quadruple-stapled units began
trading on the ASX in December 2011.
The entity has investments in 81
shopping centres across Australia, with a
portfolio value of $6.6 billion as at June
2012. FDC’s rental income relies heavily
on anchor tenants Woolworths and
Wesfarmers, which provide more than
20% of lease revenue.
The Australian-listed property group
has struggled since December 2007, due
to over-expansion activities in the US
market. Due to Centro’s practices during
this period, ASIC made an example of
Centro’s directors by finding them guilty
of failed due care and diligence in 2011.
The company continued to restructure
through 2012, replacing the CEO and
CFO of the head entity early in the year.
In April 2012, Centro announced plans to
sell stakes in some of its largest
investments, including The Glen in
Melbourne, Galleria in Perth and
Colonnades in Adelaide. In May 2012,
Perron Group acquired the assets for
Retail Property Operators in AustraliaJune 2013 25
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Major Companies
Other Companies
continued
$690.0 million at a premium to their
book value. In December 2012, the
company announced plans to change its
name to Federation Centres, effective
from January 2013.
In the first year under the new
quadruple stapled structure, FDC earned
$318.3 million in revenue, with earnings
from property ownership measuring
$286.7 million. The entity recorded a
pre-tax loss of $220.7 million, largely a
result of adjustments relating to a class
action settlement against the company, as
well as heavy borrowing costs. Revenue
and profit are both expected to increase
for 2012-13 based on the companies
December 2012 half-year release.
Stockland
Estimated market share: 1.4%
Stockland is a property development and
investment group and one of Australia’s
largest diversified property groups.
Stockland develops and manages a large
portfolio of residential, community,
apartment, retirement-living, retail,
office and industrial assets.
In Australia, Stockland’s investment
portfolio comprises commercial
properties, retirement-living villages,
residential communities, apartment
projects and an unlisted property fund.
In addition, the 2007 acquisition of
Halladale Group established the
company in the United Kingdom with a
mixed property portfolio. Furthermore,
the acquisition of Aevum in 2010 doubled
their retirement village portfolio.
Until the global financial crisis,
Stockland grew steadily in terms of asset
size and profit margins. However, in
2008 the company was required to make
changes in line with difficult market
conditions. This included changes to its
portfolio, with non-core properties
disposed of and the remaining stock
substantially re-valued.
Stockland’s financial performance has
been volatile of late. The company’s
assets have remained more or less
stagnant. The group has actively
attempted to attract tenants that are less
exposed to the threat of online shopping,
identifying that as a major threat to their
rental income. As a portion of income
from tenants is attributable to their
turnover, this is a key aspect of tenant
selection. In the 2011-12 financial year,
revenue from retail property operations
was up 2.9%, and net income from the
business up 8.0%. In the five years
through 2011-12, the group grew retail
property assets at a compound annual
rate of 4.1%.
Retail Property Operators in AustraliaJune 2013 26
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Operating Conditions
Capital Intensity | Technology & Systems | Revenue Volatility
Regulation & Policy | Industry Assistance
Capital Intensity
Level
The level
of capital
intensity is L ow
The level of capital investment required to
operate a property unit varies depending on
the size, location and type of retail property.
While investment in a single, small-size
commercial property such as a small shop
front might not require a significant level of
ongoing administrative or labour input,
investment in large properties like shopping
centres and department stores are more
labour intensive.
Comparing the ratio of wages with
depreciation can be used to determine
how much capital is used in production
as opposed to labour. IBISWorld
estimates that for every dollar spent on
capital, $11.30 is spent on labour,
indicating that this industry is focused
on labour-intensive activities. Labour
intensity is high relative to capital
Capital intensity
Capital units per labour unit
0.5
0.4
0.3
0.2
0.1
0.0
Economy
Rental, Hiring Retail Property
and Real Estate
Operators
Services
Dotted line shows a high level of capital intensity
SOURCE: WWW.IBISWORLD.COM.AU
intensity due to a constant need to
monitor tenants, and to market
potential properties.
Tools of the Trade: Growth Strategies for Success
Investment Economy
Recreation, Personal Services,
Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labour skills are key to
product differentiation.
Information, Communications,
Mining, Finance and Real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.
Retail Property Operators
Electrical Services
Residential Property Operators
Plumbing Services
Traditional Service Economy
Consumer Goods Retail
Wholesale and Retail. Reliant
on labour rather than capital
to sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.
Capital Intensive
Labour Intensive
New Age Economy
Commercial and Industrial
Building Construction
Change in Share of the Economy
Old Economy
Agriculture and Manufacturing.
Traded goods can be produced
using cheap labour abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialise
in niche, high-value products.
SOURCE: WWW.IBISWORLD.COM.AU
Retail Property Operators in AustraliaJune 2013 27
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Operating Conditions
Technology & Systems The greater use of computerised property
Level
The level
of
Technology Change
is M
edium
management systems can provide
efficiency gains in administration for
large property operators. Real estate
investment software systems provide
sophisticated transaction processing and
analysis tools. These systems can be
operational systems, supporting day-today activities and transactional in nature
(e.g. property maintenance, management
and accounting). Decision support
systems consolidate operational data
with industry benchmarks and market
assumptions to enable a strategic analysis
of an asset portfolio (e.g. to measure
performance, forecast cash flows and
support investment decisions).
Cloud computing also demonstrates
capabilities in this respect. Its ability to
centralise data online allows retail
property operators to utilise cloud
computing towards their own gains in
efficiency. Conversely, it also allows
retailers (especially chains) to link to
each other easily, thus helping facilitate
sales overall, and as a result may lead to
less demand for property space.
Retail property operators also have
new marketing technologies at their
disposal. Location aware technologies
such as Shopkick are able to detect when
a consumer that has downloaded the
application to their phone about special
offers or other marketing messages when
the consumer is near the store or inside
the shopping centre. New building
technologies (smart buildings) may also
provide marketing advantages for some
properties over others. New technologies
addressing environmental concerns (e.g.
noise-reduction technologies) may
provide some competitive advantages.
Business-to-business e-commerce is
expected to improve the management of
inventories and reduce inventory
requirements, and this may have a
moderate adverse impact on demand for
retail space. As retailers become more
efficient in stock management, space
required is declining. Just-in-time (JIT)
stock management systems mean less
retail space is required, as stock is
ordered more efficiently and spends less
time taking up retail space.
Online retailing
Online retailing is reshaping the
industry’s approach towards attracting
potential leases and demand for floor
space. Australia’s current economic
resilience is leading to a sustained
stronger exchange rate in conjunction
with a value-conscious consumer base.
This has catalysed the appeal of online
retailing options, creating greater
competition for Australian retailers, and
raising the question as to whether
retailers require floor space at all to sell
their products. While certain retail
industries (electronics, books, cosmetics
and apparel) have already lost significant
market share to online competitors,
trends are showing that consumers still
require some degree of customer service
along with potential hands-on interaction
to help make purchasing decisions.
However, online goods are often sold
from a warehouse or even straight from a
manufacturing premises, meaning more
products are going straight from the
manufacturer or wholesaler to the client.
The product’s only retail presence,
therefore, is electronic.
Westfield has displayed initiative in
this regard, recently opening their own
online store. The website amalgamates
the products of smaller retailers that
reside in their shopping centres. By
providing them with an online presence,
online presence small retailers are able to
increase their market size and decrease
costs. At the same time, the website
intends to lure consumers to the stores
themselves, thus using the online store as
a complementary promotional device to
their core business.
Retail Property Operators in AustraliaJune 2013 28
WWW.IBISWORLD.COM.AU
Operating Conditions
Level
The level
of
Volatility is M
edium
Revenue generated at an industry level is
largely dependent on a range of economic
and demographic factors. Changes to
interest rates, unemployment rates,
consumer and business confidence,
consumer spending patterns and general
economic conditions all affect retail
turnover volumes, rental rates, sales
volumes, property prices occupancy rates
and overall demand for retail properties.
A higher level of revenue
volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilised
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.
This can be well illustrated with the
recent effects of the global financial crisis,
where retail sales volumes, occupancy
and rental as well as property prices were
all negatively affected, thus reducing
industry wide revenue. Due to this,
industry revenue can be seen to be
sensitive to cyclical changes in the overall
economy, though long-term leases can
have an effect of moderating this impact.
Volatility vs Growth
1000
Revenue volatility* (%)
Revenue Volatility
Hazardous
Rollercoaster
100
10
Retail Property Operators
1
0.1
Stagnant
–30
–10
Blue Chip
10
30
50
70
Five year annualised revenue growth (%)
* Axis is in logarithmic scale
SOURCE: WWW.IBISWORLD.COM.AU
Regulation & Policy
Level & Trend
he level of
T
Regulation is
Heavyand the
trend is S
teady
A number of regulations and policies
influence the Retail Property Operators
industry. Retail lease legislation differs
from other forms of commercial tenancy
leases in that the legislation differs by
state. Each state and territory in Australia
has its own retail tenancy legislation in
place governing the relationship between
retail landlords and their tenants.
Legislation generally prescribes such
things as mandatory disclosure
requirements prior to signing a lease,
minimum lease terms, notice to be given
for renewal and termination of a lease,
compensation to tenants for disturbance
or relocation during shopping centre
redevelopments, rent review requirements,
payments of outgoings, requirements for
the assignment of leases and the process
for resolving disputes.
The laws in place came about from the
late 1980s in order to deal with disparity
in bargaining power between retail
property operators and retail tenants.
However, continuing concern over the
extent of legislation and the ability of the
legislation to protect both landlords and
tenants led to a 2007 Productivity
Commission report into retail tenancy
arrangements. Findings determined that
the legislation was not affecting the
efficiency of the retail sector, but
recommended increasing education and
transparency of the legislation. Several
states have adjusted legislation to ensure
lessees are better informed when entering
a contract.
Zoning and building legislation
Typically controlled by the local
government bodies, zoning regulations
control what land is available for
construction. They determine which
uses may be allocated to each property
site, dimensional requirements and the
density of a development. In this way,
Retail Property Operators in AustraliaJune 2013 29
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Operating Conditions
Regulation & Policy
continued
zoning regulations are a major obstacle
for new developments and can act in
limiting the availability of suitable land
for retail development. Additionally,
supply of retail zoned land responds
very slowly to market conditions due
to the high level of regulation. As a
result, constraints on retail space
available can skew prices under certain
market conditions.
There are also state and territory
government building regulations. The
WA State Government has introduced
the Commercial Tenancy (Retail Shops)
Agreements Amendment Bill 2011, which
aims to protect tenancy rights of small
businesses through seeking to making
lease arrangements more transparent,
helping to ensure fairness and efficiency.
There are also state and local
government taxes (such as council rates,
land tax and water rates), which are
usually passed onto tenants.
Environmental protection legislation
can present significant risks to property
owners, and buildings should be designed
to ensure compliance with emission, noise
and site-contamination requirements.
Industry representation
A number of organisations and governing
bodies further act on the behalf of retail
property operators. The Property Council
of Australia represents about 2,200
commercial property owners in Australia.
The Shopping Centre Council of Australia
represents the interests of investors in
shopping centres. Public policy issues are
being addressed by the Shopping Centre
Council include ongoing reviews of retail
lease legislation by state and territory
governments, trading hours for shopping
centres, metropolitan centres policies,
youth and shopping centres, and smoking
bans in shopping centres.
The Foreign Investment Review
Board (FIRB) administers Australia’s
foreign investment policy on behalf of
the Commonwealth Government, and
restricts some overseas investment in
Australian property. FIRB notification is
required for non-residential purchases
over $5 million. The conditions applied
to foreign investment have been
progressively liberalised and rejections
of non-residential property acquisitions
are minimal.
Industry Assistance
In 2009, the Federal Government set up
the Australian Business Investment
Partnership. This $4 billion commercial
property sector support fund was
established to help maintain the
liquidity of the commercial property
sector in Australia by providing support
to viable commercial property assets.
The partnership between the
government and the private sector
helped refinance successful commercial
property companies threatened by the
withdrawal of foreign banks and frozen
capital markets.
The Property Council of Australia is an
industry association with the mission of
championing the interests of the
Australian property sector within the
political arena. The council has the goals
of making property a more attractive
asset class, increasing competition within
the class and promoting a positive image
for Australian property. The council also
encourages the professional development
and property market participants and
provides market data.
Level & Trend
he level of
T
Industry Assistance
is L owand the
trend is S
teady
Retail Property Operators in AustraliaJune 2013 30
WWW.IBISWORLD.COM.AU
Key Statistics
Industry Data
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Sector Rank
Economy Rank
Revenue
($m)
16,285.9
19,173.2
25,303.7
29,145.6
30,188.8
28,036.2
28,378.1
29,401.0
29,711.7
29,967.9
30,387.5
31,116.8
32,299.2
34,011.1
35,643.6
2/35
44/611
Annual Change
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Sector Rank
Economy Rank
Revenue
(%)
17.7
32.0
15.2
3.6
-7.1
1.2
3.6
1.1
0.9
1.4
2.4
3.8
5.3
4.8
28/35
393/611
Industry
Value Added
($m)
Establishments
9,466.6
38,086
12,351.8
39,846
15,091.7
41,296
9,773.4
42,224
10,086.1
40,709
8,719.3
46,068
9,222.9
46,687
9,849.4
47,543
11,400.2
47,837
11,837.3
48,926
12,793.1
50,590
13,442.4
50,148
14,114.8
49,409
14,216.6
51,539
13,687.1
53,511
4/35
4/35
41/611
21/611
Enterprises
28,794
30,157
31,254
31,956
30,809
34,864
35,331
35,977
36,200
37,022
38,099
37,611
36,708
38,177
39,521
4/35
18/611
Employment
65,574
71,344
81,903
102,246
92,876
90,662
91,392
92,725
93,909
96,670
99,958
98,445
97,711
99,162
98,943
1/35
44/611
Exports
---------------N/A
N/A
Imports
---------------N/A
N/A
Wages
($m)
5,064.9
6,480.6
7,009.2
7,694.4
6,973.6
7,681.9
6,952.7
7,056.3
7,249.6
7,462.0
7,657.6
7,468.0
7,913.3
7,788.5
7,627.7
1/35
35/611
Domestic
Demand
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Industry
Value Added Establishments
(%)
(%)
30.5
4.6
22.2
3.6
-35.2
2.2
3.2
-3.6
-13.6
13.2
5.8
1.3
6.8
1.8
15.7
0.6
3.8
2.3
8.1
3.4
5.1
-0.9
5.0
-1.5
0.7
4.3
-3.7
3.8
19/35
23/35
167/610
116/611
Enterprises
(%)
4.7
3.6
2.2
-3.6
13.2
1.3
1.8
0.6
2.3
2.9
-1.3
-2.4
4.0
3.5
20/35
110/611
Employment
(%)
8.8
14.8
24.8
-9.2
-2.4
0.8
1.5
1.3
2.9
3.4
-1.5
-0.7
1.5
-0.2
20/35
133/611
Exports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Imports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Wages
(%)
28.0
8.2
9.8
-9.4
10.2
-9.5
1.5
2.7
2.9
2.6
-2.5
6.0
-1.6
-2.1
18/35
165/611
Domestic
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Average Wage
($)
77,239.45
90,835.95
85,579.28
75,253.80
75,085.06
84,731.20
76,075.59
76,099.22
77,198.14
77,190.44
76,608.18
75,859.62
80,986.79
78,543.19
77,091.86
9/35
160/611
Share of the
Economy
(%)
0.82
1.04
1.23
0.77
0.76
0.65
0.67
0.70
0.79
0.79
0.84
0.85
0.86
0.85
0.81
4/35
41/611
Key Ratios
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Sector Rank
Economy Rank
IVA/Revenue
(%)
58.13
64.42
59.64
33.53
33.41
31.10
32.50
33.50
38.37
39.50
42.10
43.20
43.70
41.80
38.40
33/35
239/611
Imports/Demand Exports/Revenue
(%)
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Figures are inflation-adjusted 2013 dollars. Rank refers to 2013 data.
Revenue per
Employee
($’000)
248.36
268.74
308.95
285.05
325.04
309.24
310.51
317.08
316.39
310.00
304.00
316.08
330.56
342.99
360.24
11/35
296/611
Wages/Revenue
(%)
31.10
33.80
27.70
26.40
23.10
27.40
24.50
24.00
24.40
24.90
25.20
24.00
24.50
22.90
21.40
22/35
200/611
Employees
per Est.
1.72
1.79
1.98
2.42
2.28
1.97
1.96
1.95
1.96
1.98
1.98
1.96
1.98
1.92
1.85
21/35
536/611
SOURCE: WWW.IBISWORLD.COM.AU
Retail Property Operators in AustraliaJune 2013 31
WWW.IBISWORLD.COM.AU
Jargon & Glossary
Industry Jargon
A-REITAustralian Real Estate Investment Trust. A trust,
usually listed on the ASX, that holds a portfolio of real
estate, allowing investors to buy units in the trust.
ANCHOR TENANTA retail tenant that brings business
to a shopping centre. They are typically the largest and
most popular store in the centre. This is most often
department store or supermarkets.
IBISWorld Glossary
BARRIERS TO ENTRYHigh barriers to entry mean that
new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITYCompares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labour. IBISWorld uses the ratio of
depreciation to wages as a proxy for capital intensity.
High capital intensity is more than $0.333 of capital to
$1 of labour; medium is $0.125 to $0.333 of capital to
$1 of labour; low is less than $0.125 of capital for every
$1 of labour.
CONSTANT PRICESThe dollar figures in the Key
Statistics table, including forecasts, are adjusted for
inflation using the current year (i.e. year published) as
the base year. This removes the impact of changes in
the purchasing power of the dollar, leaving only the
‘real’ growth or decline in industry metrics. The inflation
adjustments in IBISWorld’s reports are made using the
Australian Bureau of Statistics’ implicit GDP price
deflator.
DEPRECIATIONThe fall in the value of assets over their
normal lifetime.
NON-CORE ASSETSAssets not required for the
long-term operation of the business. They are likely to
be sold and mainly comprise high-risk properties.
VACANCY RATEThe amount of office space
unoccupied as a percentage of total available space.
INDUSTRY REVENUEThe total sales of industry goods
and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside
the firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and
capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA)The market value of
goods and services produced by the industry minus the
cost of goods and services used in production. IVA is
also described as the industry’s contribution to GDP, or
profit plus wages and depreciation.
INTERNATIONAL TRADEThe level of international
trade is determined by ratios of exports to revenue and
imports to domestic demand. For exports/revenue: low is
less than 5%; medium is 5% to 20%; and high is more
than 20%. Imports/domestic demand: low is less than
5%; medium is 5% to 35%; and high is more than
35%.
EMPLOYMENTThe number of permanent, part-time,
temporary and casual employees, working proprietors,
partners, managers and executives within the industry.
LIFE CYCLEAll industries go through periods of growth,
maturity and decline. IBISWorld determines an
industry’s life cycle by considering its growth rate
(measured by IVA) compared with GDP; the growth rate
of the number of establishments; the amount of change
the industry’s products are undergoing; the rate of
technological change; and the level of customer
acceptance of industry products and services.
ENTERPRISEA division that is separately managed and
keeps management accounts. Each enterprise consists
of one or more establishments that are under common
ownership or control.
NONEMPLOYING ESTABLISHMENTBusinesses with
no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.
ESTABLISHMENTThe smallest type of accounting unit
within an enterprise, an establishment is a single
physical location where business is conducted or where
services or industrial operations are performed. Multiple
establishments under common control make up an
enterprise.
PROFITIBISWorld uses earnings before interest and tax
(EBIT) as an indicator of a company’s profitability. It is
calculated as revenue minus expenses, excluding
interest and tax.
DOMESTIC DEMANDSpending on industry goods and
services within Australia, regardless of their country of
origin. It is derived by adding imports to industry
revenue, and then subtracting exports.
EXPORTSTotal value of industry goods and services sold
by Australian companies to customers abroad.
IMPORTSTotal value of industry goods and services
brought in from foreign countries to be sold in Australia.
INDUSTRY CONCENTRATIONAn indicator of the
dominance of the top four players in an industry.
Concentration is considered high if the top players
account for more than 70% of industry revenue.
Medium is 40% to 70% of industry revenue. Low is less
than 40%.
VOLATILITYThe level of volatility is determined by
averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
±20%; high volatility is ±10% to ±20%; moderate
volatility is ±3% to ±10%; and low volatility is less than
±3%.
WAGESThe gross total wages and salaries of all
employees in the industry. Benefits and on-costs are
included in this figure.
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