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Stewart Hutcheon, Dexus Property Group

See Stewart Hutcheon speaking at the Big Guns lunch – video below

With the National Retailers Association predicting that the Australian retail industry is set to hit a record $300 billion in revenue this financial year, the outlook is largely optimistic as we head into 2016.

Off the back of what’s been reported as the strongest Christmas in 10 years (Citi Research, 4 February 2016), Australian retailers are in a good position to capitalise on the alignment of macro influences driving the retail industry. Low interest rates, employment growth and falling petrol prices are all set to assist retail growth this year. The only potential constraint for retail sales may be softer wages growth and any unforeseeable external shocks to the Australian economy.

Consumer confidence surged into positive territory in November 2015 and, despite mild fluctuations in the last few months, remained positive in February. As a significant driver of retail spending, weak consumer confidence is a key risk for retail. The forecast view is that consumer confidence in 2016 will be supported by lower interest rates and petrol prices, but could be affected by broader economic shocks.

Online retail sales continued to grow in 2015 at around double the rate of traditional retail sales; however, the rate of growth is slowing (currently 11.2% p.a. compared to 30% p.a in 2011 – NAB/Quantium December 15). DEXUS Property Group will continue to focus on digitising its retail centres to assist retailers in growing their online presence, and accepts that omni-channel retailing is here for good and must be embraced by both retailers and mall operators.

One of the key impacts that became more obvious during 2015 was the effect online spending appeared to have on bricks-and-mortar retail in terms of customer dwell time in centres. Rather than browsing in stores, customers now have all the information they need at hand and are well educated on their planned purchases prior to entering a shopping centre.

The challenge for retailers to implement strategies specifically with the purpose of increasing dwell time will become more important in 2016 and beyond. Activation and customer experience strategies will be everyone’s priorities as personalised engagement becomes paramount to protect sales growth. At DEXUS, we are exploring several strategies to elevate our customers’ experience in our centres and therefore encourage repeat visitation and loyalty.

Our retail portfolio continues to grow

In a tightening transactional market, DEXUS Retail’s key focus has been on the retail development pipeline opportunity.

However, the Group continued to actively pursue any on-strategy acquisition opportunities and was pleased to welcome Eagle Street Pier to its Brisbane retail portfolio in late 2015.

Eagle Street Pier was jointly acquired by DEXUS and DEXUS Wholesale Property Fund (DWPF) as part of Waterfront Place Complex. This addition reflects DEXUS’s interest in CBD retail locations where it is able to leverage its office and retail property capability. This transaction resulted in the total DEXUS Retail portfolio to be valued at $4.1 billion.

The focus for 2015 was undoubtedly the further progression of the development pipeline.

DEXUS intensified its focus on maximising returns for its funds and clients from its $1.3-billion third party development retail pipeline.

The first stage of the Willows Shopping Centre development in Townsville is well underway, with works progressed on the new-format Woolworths, two new mini majors, 35 new specialty stores, a fresh food precinct and additional parking.

Construction has also commenced on Tweed City Shopping Centre’s entertainment and leisure precinct which includes restaurants, cafés and an outdoor communal area which takes advantage of the enviable climate of the region. Concurrently the centre is adding a new mini major, welcoming Harris Scarfe to the centre – the first in the region. The project is on schedule for completion in late 2016.

We will also see the delivery of an entertainment and leisure precinct at Smithfield Shopping Centre, Cairns in 2016. This project will include a cinema complex, restaurants and cafés, and a communal area and children’s play area.

The successful completion of retail development projects in DWPF’s Westfield shopping centre portfolio reinforces our active management approach for joint venture properties. We have collaborated and engaged with Westfield to ensure that asset strategies meet the needs of customers in the trade areas while, of course, maximising the returns for DWPF.

The $480-million Miranda project was completed last year, as was the $138-million Westfield Hurstville redevelopment.

Developments are also underway at Westfield North Lakes, with Stage 1 of the project (ELP and Fresh Food precinct) opening in November 2015. The cinema complex is set to be delivered in April this year. Works are also underway on the IKEA Link Mall which is scheduled for completion later in 2016.

City Retail strategy gains momentum

Our City Retail strategy will continue to take advantage of DEXUS’s large exposure to office property by capitalising on the synergies between the office and retail components of its buildings.

This strategy has gained momentum in 2015, and 2016 is set to be a stellar year with the opening of the $80-million redevelopment of the retail component of Gateway in Circular Quay, Sydney late this year.

Leveraging DEXUS’s property expertise across its platform in the areas of development, retail and leasing, the project will convert the existing three-storey retail podium into a destinational dining and lifestyle precinct, and is set to confirm the assumption that a great retail offer within an office building enhances tenant satisfaction and productivity as well as tenant retention.

The project will set the tone for the Circular Quay precinct, redefining dining options available within the area during the day and into the evening, and establishing Gateway as a food destination catering to all tastes and budgets. We are creating a versatile and contemporary harbourside eating landmark to serve all customer bases, including the office customers, CBD residents and tourists.

A number of transformational projects are planned and underway for the Circular Quay area with the objective of revitalising the precinct. This includes the introduction of the Light Rail which will transport an expected 6,000 visitors per hour to Circular Quay by 2019. DEXUS is very focused on creating a sense of place for our customers by creating an environment that enhances the entire precinct. The design and ambience of the new Gateway is in keeping with City of Sydney’s vision for the precinct.

Neil Perry’s The Burger Project and the popular Chat Thai were the first retailers to have signed leases for the revitalised retail at Gateway.

Further development approvals are being sought at other CBD office properties across the Group’s portfolio, with masterplanning underway on several assets including the Eagle Street Pier precinct.

International retailers seek flagship CBD locations

International retailers are now a common participant in the Australian market, specifically seeking out flagship CBD locations as part of their expansion strategies.

Given the extensive exposure of DEXUS to CBD office locations, we have taken full advantage of this trend by securing first-to-market retailers at several of its CBD office locations. This includes the first COS store in Sydney opening at 5 Martin Place as well as the first Rimowa store in Australia.

DEXUS is positive about the outlook for FY16/17 and excited to be investing into the opportunities as outlined. Keeping shopping centres relevant as the market changes at an ever-increasing pace is the challenge for the industry. It is good to have almost every one of the properties we manage under some form of redevelopment whether large or small, in order to maintain optimal relevance to our trade-area customers.

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Stewart Hutcheon

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