Savills Research New South Wales

Spotlight Sydney CBD Retail

March 2014

Highlights
Major International fashion labels are considering the
Australian market and seeking flagship prime locations outside the Prime Retail Precinct of the Sydney CBD The overall vacancy rate for Sydney CBD retail increased to 2.6 percent in the last six months, up from 2.4 percent Despite the increase in vacancy, Sydney CBD is still the standout performer when compared to other capital city vacancy rates

Clothing, Footwear and Accessories is the dominant

category in the CBD survey, followed by Cafes, Restaurants and Takeaways There has been significant increase of pop-up stores occupying vacant prime retail shops in the last 12 months The upcoming pedestrianisation of George Street will create opportunities for more prime retailing within the Sydney CBD

Savills Research | Sydney CBD Retail

March 2014

Savills New South Wales Team

Research
Divisional Director Simon Hemphill +61 (0) 2 8215 8892 Analyst Monir Shahbake
+61 (0) 2 8215 8872
mshahbake@savills.com.au

shemphill@savills.com.au

Managing Director
Managing Director Simon Fenn +61 (0) 2 8215 8830
sfenn@savills.com.au

Retail Investments
National Director Steven Lerche +61 (0) 2 8215 8929
slerche@savills.com.au

Retail Services
Divisional Director Leighton Hunziker +61 (0) 2 8215 8838
lhunziker@savills.com.au

Retailer Representation
Tenant Representative Natalie Muir +61 (0) 2 8215 8805
nmuir@savills.com.au

Retail Leasing
Executive David Kleiner +61 (0) 2 8215 8820
dkleiner@savills.com.au

Retail Management
Divisional Director Thomas Brown +61 (0) 2 8215 8893
tbrown@savills.com.au

Valuation & Consultancy

Divisional Director Andrew Johnston +61 (0) 2 8215 8853
ajohnston@savills.com.au

Senior Valuer Lucas Forbes +61 (0) 2 8215 8990

lforbes@savills.com.au

Project Management
General Manager David Nicholas +61 (0) 2 8913 4813

Corporate Real Estate

Divisional Director John Mackenzie +61 (0) 2 8215 8982

dnicholas@savills.com.au

jmackenzie@savills.com.au

Savills New South Wales

Level 7, 50 Bridge Street Sydney, NSW 2000 Australia +61 (0) 2 8215 8888 savills.com.au

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Savills Research | Sydney CBD Retail

March 2014

Introduction
Prime retailing in the Sydney CBD comprises a diverse mixture of convenience, tourism, high end fashion, cultural, civic and entertainment retailing. It reflects the vibrancy and diversity of its customers that live, work and visit the city. The latest employment levels across the City of Sydney LGA totals approximately 242,079 persons, of which white collar workers comprise 222,515 (Deloitte Access Economics, 2013). The resident population of Sydney was estimated at 183,500 people in 2011 by the NSW Government. This is forecast to grow to 201,900 persons by 2016 and to 236,100 persons by 2021. The majority of this population is expected, as is the current trend, to be made up by professionals under the age of 50. This increase in population will generate high levels of demand for retail. In addition to residents who live in the city, there are also residents and visitors who live and stay in the wider Sydney metropolitan area who venture into the City for entertainment and shopping, and to enjoy the cultural opportunities that Sydney has to offer. The Sydney City Councils most recent space use survey reports retail and leisure activities occupy 7 percent of the total floor space in the CBD outlined in the table below.
Sydney CBD Internal Floor Space by Space Use Division Space Use Office Shop/Showroom Entertainment/Leisure Restaurant/Eating Other Total
Source: City of Sydney 2006

Internal Floor Space (sq m) 7,514,983 921,158 779,262 623,692 24,361,084 34,200,179

% of Total Internal Floor Space 22.0 2.7 2.3 1.8 71.2

Savills analyses prime retail in the Sydney CBD according to precincts as detailed below:
Precincts CBD Prime Retail Precinct Core Rocks King Street Wharf Southern
Source: Savills Research

Bounded by Martin Place, Castlereagh Street, Market Street and George Street Castlereagh Street, Martin Place, George Street and Pitt Street outside of the Prime Retail Precinct George Street (Rocks end) and Hickson Road King Street Wharf and planned development in Barangaroo South end of George Street

Retail tenancy types are referred to throughout this report, definitions of which can be found at the end of this report.

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Savills Research | Sydney CBD Retail

March 2014

Major Retail Centres Centre 201 Elizabeth Street 233 Castlereagh 52 Martin Place 580 George Australia Square Chifley Plaza Circular Quay Retail Gateway Quayside Glasshouse Shopping Centre Hunter Connection Market City Metcentre Mid City Centre MLC Centre No 1 Martin Place Number One D1XON Queen Victoria Building St James Centre Stockland Piccadilly Strand Arcade Sussex Centre The Galeries The Rocks Centre The Wintergarden Town Hall Square Wentworth Connection Westfield Sydney World Square Shopping Centre Wynyard Railway Concourse Wynyard Walkways Total
Source: SCD 2013 / Savills Research

Address Cnr Park St & Elizabeth St 233 Castlereagh St 52 Martin Pl 580 George St 264 George St 2 Chifley Sq Circular Quay 1 Macquarie Pl 150 Pitt St 7 Hunter St 9-13 Hay St 273 George St 197 Pitt St 19-29 Martin Pl 1 Martin Pl 1 Dixon St 455 George St 107-111 Elizabeth St 210 Pitt St 412-414 George St 401 Sussex St 500 George St Cnr Playfair St & Argyle St 1 O'Connell St Cnr Kent St & Bathurst St 61-101 Phillip St Cnr Pitt St Mall & Market St 644 George St Cnr George & York St 301 George St

Shops (No) 9 24 22 27 21 45 19 22 24 55 127 84 41 58 8 63 180 17 43 77 46 68 16 11 38 16 310 99 39 77 1,686

GLAR (sq m) 1,264 1,263 2,194 3,171 1,576 4,995 1,985 2,163 3,623 2,069 15,061 5,741 9,109 6,228 3,024 6,847 13,669 2,548 5,649 4,837 1,582 14,050 1,197 406 3,180 2,050 88,912 16,181 3,111 3,039 230,724

Owner DEXUS Property Group / Perron GDI Property Group QIC Real Estate The GPT Group The GPT Group / DEXUS Property Group GIC Rail Corporation NSW DEXUS Wholesale Property Fund Investa / Stockland Strata Jen Retail Properties Ltd Mirvac Property Trust / MTAA Fortius / Lend Lease (APPF Retail) The GPT Group / QIC Real Estate AUSCO Martin Pty Ltd Strata Plan Ipoh Pty Ltd Tanert Pty Ltd Stockland Ipoh Pty Ltd Ambadell Pty Ltd Barroham Pty Ltd / Abrocoona Pty Ltd Sydney Harbour Foreshore Authority Harina Company Ltd / Lend Lease Glebe Administration Board City Freeholds Westfield Brookfield / AWPF Management No. 2 Pty Ltd Rail Corporation NSW Sovereign Wynyard Centre Pty Ltd

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Savills Research | Sydney CBD Retail

March 2014

Retail Development
Prime retailing within Sydney CBD underwent a significant transformation over the last couple years, particularly within the Core precinct, with the Westfield Sydney re-development and the completion of Mid City Centre. Despite the economic conditions at the time of construction, these projects went ahead whilst others froze in the development pipeline. More recently, Darling Quarter completed in the Western Corridor of the Sydney CBD, adding tourist amenity retailing to the area, as well as the retail offering at 161 Castlereagh Street. There have been relatively few new projects announced in the Sydney LGA (Local Government Area) over the last two years. Of those that have been, most have been within the Sydney CBD and are part of office, retail or residential mixed use developments. The success of these CBD developments can be seen through the increased pedestrian activity through Pitt Street Mall and surrounding streets since their opening. Pitt Street Mall maintains its position as Sydneys premier shopping destination after existing as a construction site for a long period of time. Shoppers who ventured to fringe and outer suburbs in search of retail variety are now returning to the city.
Current Sydney CBD Retail Development Activity Property 48-50 Martin Pl International Towers Sydney T3 Central Park (Frasers) York&George, 383 George St 20 Martin Pl 5 Martin Pl International Towers Sydney T2 333 George St Barangaroo R8, R9, Hickson Rd 331-333 George St City One, 289-307 George St Precinct Prime King Street Wharf Southern Core Prime Prime King Street Wharf Prime King Street Wharf Core Core Type CBD CBD CBD CBD CBD CBD CBD CBD CBD CBD CBD 2,500 2,350 2,000 2,100 2,000 9,700 5,315 5,000 4,200 3,000 New Extension Refurb 2,000 Status Construction Construction Construction DA Approved DA Approved Construction Site Works DA Approved Early Planning DA Approved Early Planning Completion 2014 2015 2015 2015 2015 2015 2015 2015 2016+ 2016+ 2019

Source: Cityscope / PCA / Reed Construction Data / Savills Research

Other developments in the city that will impact retailers include the reconfiguration, including pedestrianisation, of George Street to support light rail. Whilst it may be disruptive for retailers during the development phase, it will reinforce George Street as the main transport corridor for pedestrians in the city and benefit business in the long run. The City of Sydney has set aside $220 million to improve transport and the environment and open up better street-level business opportunities. The development of laneways should broaden the retail offering available in Sydney, and enhance the city experience for tourists and residents alike. The Chinatown Public Domain plan also has the potential to enhance the area with more open space, creating a pedestrian plaza for markets and outdoor dining. The City of Sydney is also working with smaller retailers, providing grants to encourage development of laneways and small business to provide a greater depth of retail experience in the Sydney CBD and its villages. In addition, they have created a Retail Advisory Panel to identify and create opportunities for CBD retailers. Other redevelopment projects within the Sydney CBD that are currently mooted include; 19 Martin Place, 55 Market Street, 345 George Street, 388 George Street and 400 George Street.

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Savills Research | Sydney CBD Retail

March 2014

CBD Tenancy Mix

The Prime Retail Precinct (as defined on page 3) in the Sydney CBD is focused along the pedestrianised portion of Pitt Street Mall, and in more recent times George Street; with high end fashion found in centres and in historic stand alone accommodation in King Street, Castlereagh Street and Martin Place. Recent redevelopment of the traditional Prime Retail Precinct now provides shoppers with the best retail offering in Australia. Retail is also successful in George Street to the north and south of the Prime Retail Precinct, where retailers take advantage of demand from tourists and commuters; who travel along the citys spine. The Rocks and Circular Quay are popular destinations for tourists and retail, catering more to their needs is evident in George Street North. Services, food and some low to mid level fashion retailers cater for commuters who come from Wynyard and Martin Place stations. Development in the southern end of the Sydney CBD, World Square (2005) and The Galeries Victoria (built 2000) saw an improved offer of retail south along George Street to cater for local workers and residents. The Sydney CBD Retail report surveys tenant retail types by shop front and analyses demand for retail accommodation. The current report shows demand is mainly driven by Clothing and Softgoods retailers (42 percent), and Cafes, Restaurants and Takeaways (21 percent) and Services (11 percent).
Sydney Retail Sydney CBD Tenancy Mix (% Shopfront) as at H2 2013
Recreational 3% Household 2% Other 11% Cafe Restaurants & Takeaway 21%

Clothing, Footwear and Personal Acc. 42%

Hospitality 3% Services 11%

Department Stores <1% Source: Savills Research

Food 5%

Vacant 2%

Demand for Services and Other retailing is higher in the commercial core of the Sydney CBD, where retailers provide for workers as well as tourists and residents rather than destinational retail. Other retailing, which includes retail such as pharmacies, florists and stationers etc, makes up 11 percent of the current retailer profile in the Sydney CBD. The Prime Retail Precinct has a higher concentration of Clothing and Softgoods retailers (49 percent); while services, hospitality and fresh food offerings have a lower representation compared to the rest of the survey. This difference in tenancy mix is due to the high number of larger enclosed centres within this area. There has been a massive change throughout the wider Sydney CBD and surrounding suburbs over the last three years in terms of tenancy mix. The trend for CBD and non-CBD retail alike has been that of a distinct shift from Retail and Personal Services to Food and Drink retailing. More specifically, Savills have recorded a dramatic shift from Personal Services to Cafes, Restaurants & Takeaway food retailing.

The Sydney CBD commands some of the highest retail rents in the world. Having remained static for three years, prime rents in Pitt Street Mall decreased in the second quarter of 2013, in response to dwindling tenant demand. However, since then average rents have held firm at $8,875 per square metre per annum, a 4.6 percent decrease over the last 12 months. The main driver behind this fall in rents is undoubtedly a combination of the tenants capability to pay very high face rents, with little or no incentives being offered by the landlord at the time of signing the original lease, and the fact that leases are now coming up for renewal. There is certainly a shift in the balance of power between landlord and tenant and this is being borne out in the Sydney CBD retail market. More recently the use of large incentives to attract and/or retain tenants is present within the market, while a shop fit-out or a rent free period remains the preferred type of incentive for new tenants, a renewing occupier would likely seek a combination of a rent free period as well as a significant drop in face rent.

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Savills Research | Sydney CBD Retail

March 2014

Retail Tenancy Mix by Number December 2013 Category Food Department Stores Clothing and Softgoods Household Recreational Other Cafe, Restaurant & Takeaway Hospitality Services Vacant Withdrawn (Under Construction) Total
Source: Savills Research

Prime Retail Precinct 27 3 311 19 16 52 110 10 69 16 1 634

Core 25 0 183 8 13 54 94 8 60 12 2 459

Rocks 3 0 22 0 4 23 10 10 2 2 0 76

King Street Wharf 1 0 0 0 0 0 24 8 0 2 0 35

Southern 6 0 25 3 2 9 30 1 19 2 0 97

Total 62 3 541 30 35 138 268 37 150 34 3 1,301

The introduction of Westfield Sydney development and Mid City Centre heralded an increase in Clothing and Softgoods, and Cafes, Restaurants and Takeaway in the Prime Retail Precinct. Recent development has also had a musical chair effect on tenants throughout the city. Many who were not previously located in Pitt Street Mall have been able to relocate. A number of retailers were also drawn from alternative locations within the Prime Retail Precinct; such as Zimmermann from the Strand Arcade, Prada from Martin Place and Nespresso from King Street Wharf. A large number of international brands are still considering the Australian market and are seeking flagship prime locations outside the Prime Retail Precinct of Sydney CBD. Some of the international brands arriving in Sydney are River Island (UK), H&M (Sweden), Uniqlo (Japan), Marks & Spencer (UK), Forever 21 (US), Hamleys (UK), Microsoft (US) and Sony (Japan). Consumer attitudes have changed, with shoppers becoming more comfortable with online purchasing. However, the reality is that whilst real spending for online retail has increased, the share of total spending is still rather modest. According to the December 2013 NAB Online Retail Sales Index, Australians spent $14.7 billion on online retail over the last 12 months an increase of $1.9 billion from last year figures. The online share of total retail spending remains modest at just 6.5 percent. In seasonally adjusted terms the Australian Bureau of Statistics (ABS) recorded a 0.5 percent increase in retail turnover in December 2013. This follows a rise of 0.7 percent in November 2013 and a rise of 0.5 percent in October 2013. In trend terms, Australian turnover rose 4.6% in December 2013 compared with December 2012 The following industries rose in trend terms in December 2013: Food retailing (0.6 percent), Cafes, restaurants and takeaway food services (1.2 percent), Other retailing (0.5 percent), Clothing, footwear and personal accessory retailing (0.7 percent), Department stores (0.4 percent) and Household goods retailing (0.1 percent).

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Savills Research | Sydney CBD Retail

March 2014

Retail Vacancy
Over the last 12 months there has been very little change in the broad composition of the retail and service offering in the Sydney CBD. Vacancies generally tend to be located in inferior, out-of-theway, or upper level locations rather than superior street frontage locations. There is currently some hidden vacancy where a number of shops are promoting new or lesser known artists, or sales shops with makeshift fit-outs, often referred to as pop-up stores, are currently occupying a number of locations throughout the Sydney CBD. These are temporary stores using short-term leases, from a few days up to a few months, to set up in vacant retail space used by retailers to introduce themselves into new markets where they have not yet established a real estate presence.
Retail Vacancy December 2013 Precinct Prime Retail Precinct Core Rocks King Street Wharf Southern Total
Source: Savills Research

Shops (No) 634 459 76 35 97 1,301

Vacancy (No) 16 12 2 2 2 34

Vacancy (%) 2.5 2.6 2.6 5.7 2.1 2.6

With a higher retail vacancy rate in the last 12 months, there has been significant increase of these pop-up stores occupying prime vacant retail shops. Vacancies that were created by tenants moving into and out of the Prime Retail Precinct during construction of Westfield Sydney and the Mid City Centre have mostly been occupied. However, in the current survey the Prime Retail Precinct has recorded the highest level of vacancy at 2.5 percent since first survey was taken in 2008. Sydney CBD Prime Retail overall vacancy has more than doubled in the last 12 months, increasing to 2.6 percent in second half of 2013 from 1 percent in second half of 2012. Despite this, Sydney has the lowest vacancy rate of the monitored CBD retail markets. Perth CBD has the highest level of vacancy at 12.4 percent, followed by Melbourne CBD (7.2 percent), Adelaide CBD (6.2 percent) and Brisbane CBD (6 percent).

Key Market Indicators

Key Market Indicators December 2013 Pitt St Mall Low Net Rental ($/sq m) Yield - Market (%) Outgoings Operating ($/sq m) Outgoings Statutory ($/sq m) Outgoings - Total ($/sq m) Capital Values ($/sq m)
Source: Savills Research

Other CBD High 13,250 6.50 344 63 407 35,000 Low 500 5.50 184 31 215 5,000 High 4,000 8.00 344 63 407 10,000

4,500 5.50 184 31 215 10,000

Also of significance to the consumer is the level of interest rates. The consumer is particularly vulnerable to changes in interest rates because the general level of household indebtedness in Australia is high. A rise in interest rates directly diverts money from discretionary expenditure to interest repayments, assuming that the consumer has a variable rate mortgage. In an attempt to stimulate retail spending, the Reserve Bank of Australia (RBA) has been drastically cutting the official cash rate, by 225 basis points from 4.75 percent in November 2010 to 2.50 percent in August 2013. At the latest meeting in February 2014, the RBA decided to once again hold the cash rate steady at 2.50 percent. As a result, retail turnover (seasonally adjusted) according to the ABS has increased by 11.1 percent between November 2010 and December 2013.

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Savills Research | Sydney CBD Retail

March 2014

Outlook
Australian retailers have been protected from global competition due to the tyranny of distance and out of sync seasons. Brand globalisation and online retailing has generated interest from international retailers as a result of the current demand for their products. Although there appears to be some inertia around the so called wave of international retailers desiring to call Australia home, the ever present challenges of price harmonisation (relative to their online presence), seasonality and the inherent high cost structures within Australia will continue to present challenges for less wary operators. In seasonally adjusted terms the Australian Bureau of Statistics (ABS) recorded a 0.5 percent increase in retail turnover in December 2013, following rises in November 2013(0.7 percent) and in October 2013(0.5 percent). In 2013 the Reserve Bank of Australia cut the cash rate twice from 3 percent to 2.5 percent. Economists are expecting an extended period of steady rates in the following months which will assist in boosting consumer confidence. Centres in the Prime Retail Precinct now house some of the best internationally known retailers and luxury brands available. More brands have expressed interest in Sydney and there will be opportunities for the larger centres, and some stand alone premises, that are able to provide impactful locations to snare these brands. The presence of international retailers has also created higher foot traffic benefiting other retailers in those centres. Retail demand in Sydney is expected to remain strong due to the desire to be amongst the newly redeveloped offering; however, we may see some fallout of retail business due to the current economic climate and its effect on retail sales. Although the Australian economy is faring better than the rest of the advanced global economy, consumers are still hesitant to spend on goods that are not a necessity. Outside the Prime Retail Precinct, we believe that the services and lower to mid range fashion will continue to perform well and demand remains strong as workers and tourists continue to support these types of businesses. We may see the trend continue of upper end fashion relocating in better positioned stores in the Prime Retail Precinct from areas such as Martin Place and The Rocks. Retail is poised to remain an important part of the Sydney CBD, with new retail being encouraged in laneways, the possibility of George Street becoming pedestrianised, and a new Retail Advisory Panel, all assisting retailing business in the CBD.

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Savills Research | Sydney CBD Retail

March 2014

Category Definitions Category Food Retailing Function Supermarket and Grocery Stores Fresh Meat, Fish and Poultry Fruit and Vegetables Liquor Other Specialised Food Retailing Bread and Cake Specialised Food Department Stores Clothing Softgoods Department Stores Clothes Retailing Footwear Watch and Jewellery Other Personal Accessories Household Goods Furniture Floor Coverings House Ware Manchester and Other Textile Goods Retailing Electrical, Electronic and Gas Appliances Computers and Peripherals Other Electrical Hardware and Building Supplies Retailing Garden Supplies Other Retailing Sport and Camping Equipment Retailing Entertainment Media Retailing Toy and Game Retailing Newspaper and Book Retailing Pharmaceutical, Cosmetic and Toiletry Stationery Antique and Used Goods Flowers Other-Store Retailing Retail Commission-Based Buying/Selling Libraries and Archives Other Information Services Video and Other Electronic Rental and Hire Cafes, Restaurants and Takeaway Hospitality Cafs and Restaurants Take Away Food Catering Services Pubs, Taverns, Bars Clubs Services Printing Postal Services Finance and Insurance Services Real Estate Services Photographic Services Travel Agency and Tour Management Health Care Services Hairdressing and Beauty Services Laundry and Dry Cleaning Services
Source: ABS ANZSIC Codes 2006 / Savills Research

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Savills Research | Sydney CBD Retail

March 2014

Savills Research Team

Our highly regarded research divisions are dedicated to understanding and giving indepth insight into the commercial, industrial & retail markets throughout Australia. We also provide in-depth consultancy services, ranging from tenant representation to property site selection for multinational businesses. Our research teams are highly qualified real estate professionals with comprehensive knowledge of property markets across Australia. The Savills Research & Consultancy team has years of experience, and supported by our extensive agency, property management and valuation professionals, are highly regarded and respected along with Savills Research teams across the globe. Savills provide free research reports on all major property markets, and some example papers include: For our latest reports, contact one of the team or visit savills.com.au/research

Head of Research Tony Crabb +61 (0) 3 8686 8012

tcrabb@savills.com.au

Office Markets Retail Markets Residential Trends Industrial Markets International Markets

This information is general information only and is subject to change without notice. No representations or warranties of any nature whatsoever are given, intended or implied. Savills will not be liable for any omissions or errors. Savills will not be liable, including for negligence, for any direct, indirect, special, incidental or consequential losses or damages arising out of our in any way connected with use of any of this information. This information does not form part of or constitute an offer or contract. You should rely on your own enquiries about the accuracy of any information or materials. All images are only for illustrative purposes. This information must not be copied, reproduced or distributed without the prior written consent of Savills. Savills 2014

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