It’s been a challenging and sombre start to 2020, with our country tragically impacted by unprecedented bushfires and concern about novel coronavirus. Many of our communities have been directly affected by the bushfires as have members of our own team. This ongoing tragedy has demonstrated the best values of Australia with volunteer firefighters and emergency services putting their lives on the line and Australians coming together to help others during the crisis and in recovery.
Last year demonstrated that retail continues to be in transition. Adding to the complexity is a slowing global economy, the effects of which are being felt more intensely here as a result of the bushfires, drought and coronavirus. But good retailers and good landlords will see these challenges as part of the ongoing cycle of industry change, and not only adapt, but thrive.
As retail changes, it’s important to acknowledge, and what is sometimes discounted in retail-related commentary, these changes are not new. What is markedly different as we enter a new decade, is the pace of change. Our industry is responding to an acceleration caused by a convergence of technology, non-traditional competition, fast moving consumer preferences and declining brand loyalty. Consumers are firmly in the driver’s seat where customers and customer relationships are critical. Customers now value the experience at a store or centre as much as the service and product offering. Leading retailers are recognising the importance of creating a more frictionless experience for their customers.
Retail property owners and retailers are doing better than some gloomy headlines would have you believe. Nine of the ten most successful online retailers, including Amazon and Apple, now also operate physical stores, with many other successful e-retailers examining how growth of their business can be improved by exploiting a physical presence. Following recent examples in the US, in particular, we expect the march from clicks to bricks will continue as pureplay operators expand to physical to reach a much wider customer base.
It’s our responsibility as a company to operate with a sense of urgency and adapt quickly to capitalise on opportunities, helping to assure the success of forward-thinking retailers and protect our business from current and future headwinds. Further to this, it’s the forward-thinking retailers who deeply understand their customers and, by keeping pace with their demands, are now paving the pathway for the rest of the sector.
We saw this play out in the unprecedented success of Black Friday with foot traffic across our portfolio up 17%, and in a number of our key centres up more than 25%. Some of the leading Black Friday retailers were brands who delivered unique customer experiences in their physical stores as well as attractive sales offers. These successes demonstrate that consumers are not only motivated by discounts but want to have hands-on engagement with brands, products and their people.
As landlords, we’re witnessing a bifurcation of our centres, with the strong performing assets getting stronger, while others remain challenged. Adapting to those challenges, through intensive asset management, on-trend remixing and strategic developments is how we expect to meet this pace of change and position our destinations for the future. This sharpened focus reinforces our strategy to create market-leading destinations and has helped us build momentum and alignment across our portfolio and extend our point of difference to our retailers and customers, including at our flagship destinations such as Sydney’s iconic QVB and QueensPlaza in Brisbane.
This year, luxury retail in Australia is estimated to deliver $2.5 billion in sales(1). While social media influencers may shape a customer’s brand experience, more than 85% of luxury purchases are made in-store because luxury customers want a physical brand experience. Vicinity is Australia’s leading luxury landlord, with 55 brands across five centres in Brisbane, Sydney and Melbourne, including the country’s largest luxury precinct at Chadstone, which is now home to more than 40 international brands.
Our DFO centres continue to perform strongly, highlighting Australians’ desire for in-demand national and international luxury brands at the most affordable prices. Late last year, we agreed to acquire Uni Hill Factory Outlets in Melbourne’s north, subject to ACCC approval, which is set to become our seventh DFO nationally in a vibrant market category that we are looking to grow further.
Australia is now one of the most urbanised countries on earth, with more of the nation’s population living in the three fast-growing east coast cities. Sydney, Melbourne and Brisbane will continue to be drawcard physical locations for existing and incoming on-trend and marquee retailers which, in turn, creates value for our investors. In fact, 40% of us now call Melbourne or Sydney home, which creates an opportunity for Vicinity given growing demand to have brand presence in our two largest cities. It’s why these lifeblood cities are the focus of our development and mixed-use pipeline and why we’re incorporating mixed-use into each of our current major developments and many future projects in our core portfolio.
Chadstone is among the world’s most iconic retail-led destinations, now turning over more than $2 billion dollars a year. A powerful addition to our mixed-use strategy, customers can now stay longer to shop, dine and play with Hotel Chadstone opening last year. The only five-star hotel outside Melbourne’s CBD is fast becoming a popular destination for domestic visitors arriving from around Australia, corporate travellers and the half a million international visitors who come to Chadstone every year.
To meet these demographic shifts and changing consumer preferences, Chadstone is continuing to evolve with a $685 million investment planned. Our largest investment in The Fashion Capital will see a redeveloped fresh food market and expanded entertainment precinct, the introduction of key global uses dedicated to health, wellness and wellbeing, and a fourth office tower.
With Australia’s population growth and ongoing densification, delivering our mixed-use opportunities is a priority for our business designed to complement our current retail footprint, leverage existing and future government infrastructure investment and create value for our retail partners.
A prime example is currently under construction atop of The Glen in Melbourne with more than 500 apartments to be finished this year with residents moving into their new homes above our centre in 2021. Bringing people to work, stay or, in the case of The Glen, live on or above our retail precincts delivers customers during the quieter, mid-week shopping periods.
More centres in prime locations, like The Glen, will play new roles in our growing communities.
With Box Hill Victoria’s fastest growing Metropolitan Activity Centre outside the CBD, and the centre welcoming 26 million visitors each year, our ten-year vision capitalises on our 5.5 hectares in the heart of this booming suburb, transforming it into a world-class mixed-use and retail precinct.
Other key Victorian projects in growth hubs include Sunshine Marketplace and Victoria Gardens (in Richmond) with both projects including non-retail developments which are planned and phased over time to drive and complement the retail offer and create contemporary environments to work, live, relax and shop.
CBD asset management is of critical importance to Vicinity and our partners, given our unrivalled destinations in the heart of Sydney, Brisbane and Melbourne. Greater asset diversification and intensification through the introduction of co-working in Emporium Melbourne unlocks developable prime area in Emporium’s premium CBD location, which also delivers quality customer traffic throughout the building. This month, we are also launching Australia’s first video gaming and esports venue, Fortress Melbourne, which will be a new drawcard for gamers, families and tourists.
In Sydney, we’re well advanced in our plans to redevelop Chatswood Chase Sydney to cater for the highly affluent local customers and the international tourism market. With strong demand for new office accommodation close to the city’s seventh busiest train station, another key to the expansion is an office village for 2,000 new workers complementing our retail offer. Post completion of the development in 2023, we believe Chatswood Chase will re-establish itself as the pinnacle of premium destination shopping for the northern suburbs of Sydney. At Bankstown Central in Sydney’s south west, we plan to add 300,000m2 of additional developmental area to take advantage of its central Sydney location, connection to major infrastructure including rail and planned health and education services, projected population growth, complemented by a refurbished contemporary retail offer.
Importantly, to assure the success of our 60+ centres into the future and ensure we understand the role our destinations play in their evolving communities, we have and will continue to undertake extensive master-planning of our assets. Our teams will assess how we can make each of our destinations more productive and engaging to the people who rely on, and decide upon, shopping, dining, playing and staying with us. This may mean, in many instances, in the current climate with ongoing industry pressure, smaller incremental developments are going to provide a greater return than a major project. Our retail development projects will be enhanced by our industry-leading in-house data capability. Our approach is being replicated across our portfolio, including our static centres, by analysing demographics, analytics, planning policy, infrastructure and transport to support our retailers, setting them up for success and better connect our customers to the purchase or experience they’re looking for.
Last year, our team made significant inroads to mitigate climate risk across our portfolio and prepare our business for the transition to a low-carbon economy. We have committed to Net Zero carbon emissions by 2030 for our wholly owned retail assets, which will be achieved in part through our industry-leading $73 million on-site solar program and implementing innovative energy efficiency technologies. These were key factors in Vicinity’s inclusion in CDP’s(2) prestigious Climate Change ‘A list’, which recognises leading action on climate change, making Vicinity one of a small number of companies globally to achieve the top ranking.
While the year ahead may be ripe with change and toughening conditions across the landscape of the economy, we are confident in the fundamentals of the industry, that our strategy is right for a rapidly changing environment and that we are evolving our portfolio to deliver the best destinations for our consumers and retailers within their markets.
(1) https://www.ibisworld.com.au/industry-trends/specialised-market-research-reports/consumer-goods-services/luxury-retailing.html
(2) CDP’s (formerly Carbon Disclosure Project) annual environmental disclosure is widely recognised by the investment community. In 2019, more than 525 investors with more than US$96 trillion in assets requested companies to disclose data on environmental impacts, risks and opportunities.
About Vicinity Centres
Vicinity Centres is one of Australia’s leading retail property groups with a fully integrated asset management platform and $26 billion in retail assets under management across 63 shopping centres, including some of Australia’s most recognisable CBD properties – Emporium Melbourne, The Queen Victoria Building and Strand Arcade in Sydney and The Myer Centre Brisbane and QueensPlaza in Brisbane.
Chadstone – The Fashion Capital in Melbourne’s south-east is co-owned by Vicinity Centres. Chadstone is the largest shopping centre in Australia by sales with more than $2 billion. Chadstone is one of the world’s best shopping, dining and entertainment destinations that attracts more than 24 million people each year.
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