Reflecting on the year that was and predicting what a new year will bring causes most of us to acknowledge the scope and pace of change that occurs in what increasingly feels like a ‘blink of an eye’. As we welcome in a new year and a new decade, we are prompted to remember the myriad of priorities we’ve managed and consider the challenges and opportunities we will be presented with – as individuals, businesses, as an industry and indeed, a society.
It would be remiss not to acknowledge Australia’s devasting summer bushfires that marred the beginning of 2020, and the terrible toll this horrifying natural disaster took on people, wildlife, livestock and property. It’s been a deeply challenging period for our nation, and yet in our response, we were once again reminded of our collective resilience.
It was very reassuring to see the way in which the retail sector responded to the tragedy. Across our industry we witnessed numerous examples of compassion and action. At QICGRE, like our peers, we did what we could to contribute to the initial response and we remain committed to supporting impacted communities into the future. We admire the resilience of all those supporting the ongoing recovery.
It’s that story of resilience and action that will remain the enduring takeaway from the tragedy and it’s through that lens that I consider the future of our sector and priorities for QICGRE.
Macro-economic outlook
While the resilience of the Australian economy, now in its near 30th year of economic expansion, is something to be celebrated, the operating environment we face is certainly multifaceted. Average annual growth for 2019 was around the lowest since 2009 as subdued private sector spending dampened robust public sector expenditure and export growth.
The two major growth stories of 2019 – exports and government spending – will continue to contribute strongly to growth in 2020; albeit at a slightly reduced rate. Nonetheless, we think economic growth will pick up in 2020 as dwelling and business investment and household consumption gradually improve.
Housing investment, while still being a drag on growth in 2020, will be much less so than in 2019. We expect the drag from housing investment to ease from a 0.7ppt growth detraction in 2019, to a 0.3ppt detraction in 2020, with clear signs already that house prices have turned around. Given the heightened uncertainty in 2019 from global factors such as trade wars and Brexit, and local factors, such as the federal election, it’s not surprising that business and consumer confidence took a hit. But with many of these uncertainties lifting, along with a recovering global outlook and easing financial conditions, the scene is set for positive business investment growth in 2020.
Finally, household consumption was a source of weakness in 2019, weighed down by a number of headwinds; not least the decline in the housing market. While we don’t see consumer spending quickly reasserting its strong growth rate of 2018, we do expect consumption growth to stabilise and slowly pick up from here. Although the federal government’s tax cuts haven’t yet translated into a boost to spending, increased saving has strengthened household balance sheets. With growth in household borrowing slowing from the previous year, household debt to disposable income looks to have stabilised. Combined with lower debt servicing costs (from the RBA’s rate cuts), a recovering housing market, and another round of tax offset payments on the way, conditions are present for a gradual recovery in consumer spending, and we expect household consumption growth to tick up from 1.5% in 2019 to 1.8% in 2020.
As a result of these factors we expect retail sales growth to be around 3.5% over the course of this year.
Retail sector outlook
In a multifaceted economic landscape like this, it is important to leverage the power and resilience of a productive, vertically integrated real estate platform, and QICGRE’s assets continue to respond positively to our intensive active management and strategic reinvestment.
We remain vigilant in continuously assessing our investment and asset plans in line with evolving conditions and we are responding decisively in alignment with our client-endorsed strategies.
It’s becoming increasingly evident that highly productive retail assets in strong catchments and adjacent to excellent transport infrastructure continue to perform strongly, and via strong management, can evolve their retail mix in line with changing consumer preferences. In addition, these assets provide opportunities to add real estate uses beyond traditional retail. The potential represented by the addition of mixed-uses to complement an evolved retail core over time is enormous. The QICGRE team has been, and will continue to be, very active in embracing the opportunities presented by continuing to evolve our assets into retail-led, multi-purpose destinations for the communities they serve.
In alignment with this approach, in late 2019, QICGRE celebrated the opening of its $180 million development at Castle Towers in Sydney. The development seamlessly links the centre to the new Castle Hill station on the Sydney Metro North West line – the only link of its kind along the rail line. It incorporates the redevelopment of an under-utilised car park and features 45 retailers across 4,700m2 of floorspace. The bulk of the retail offer focuses on food and services for the heavy daily foot traffic emanating from the station. The development was delivered three months ahead of schedule, was 100% leased and signifies the first chapter in the ongoing evolution of Castle Towers. In 2020, we will open the next stage of the development and as we get closer to marking almost three decades of ownership of Castle Towers, we continue to invest in the Centre to create an even better place in which the local community can meet to fulfil their shopping, dining, entertainment and lifestyle needs.
In early 2020, we will unveil The Marketplace at Watergardens Town Centre. Located in one of Melbourne’s strongest growth corridors, Watergardens has been the focal point for the Taylors Lakes community for more than two decades. Influenced by the spirit of the West, we are on a journey of evolving the Centre to create a future city that reflects the community’s aspirations to make life the best it can be. The Marketplace is the latest chapter in this evolution and will be a new community gathering place where food spans cultures and generations, mirroring the unique diversity of the community. The $60 million development features repurposed floorspace and incremental GLA of circa 1,500m2. The Marketplace will welcome 24 retailers, including a new ALDI supermarket.
A key focus for our team is delivering real estate uses that complement the retail core of our town centre destinations. We have been on this journey for some time and will continue to drive the performance of our assets by adding these uses.
In the second quarter of 2020, we will have completed a fully integrated office development at Eastland, positioned between the Council-managed library, and Sage Hotel (both of which are fully connected to the Centre). About 300 office employees will be permanently based at the facility, driving additional foot traffic and spend for Eastland. We will also launch the development of another office development opposite Eastland that will deliver 14,000m2 of A-grade commercial space over ten levels, with a 70% pre-commitment from a commercial tenant. The new office tower will be 5-Star NABERS certified and have a 5-Star Green Star rating.
Finally, and very importantly, we will continue to work closely with our retail partners to deliver engaging experiences for the communities we collectively serve. We view our relationships with our retailers as a true partnership where we can co-create engaging experiences our communities value time and time again. We thank all of our retail partners for their ongoing collaboration with us and we continue to look forward to a prosperous future with them.
On behalf of the entire team at QICGRE, I wish everyone in our industry a prosperous and happy 2020.
About QIC Global Real Estate
QIC is one of Australia’s largest institutional fund managers, which has over the past 25-plus years acquired and developed a portfolio of circa 40 retail real estate assets globally.
QIC’s domestic real estate portfolio comprises assets in Queensland, Victoria, New South Wales, ACT, South Australia and Western Australia. Its international property holdings include regional retail malls in the United States located on the West Coast in California and Nevada and on the East Coast in Florida, New York, Virginia, West Virginia and Pennsylvania.
QIC’s global real estate portfolio was valued at AUD $22 billion as at 31 December 2019.
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