CEO OUTLOOK 2023: The GPT Group

of us would have thought after two years of significant and severe disruption, we would not only have recovered, but would be soaring beyond pre-COVID performance. The great centres have demonstrated resilience, delivering performance gains as they stabilised coming out of the pandemic. Can this continue as we face the known unknowns of 2023? I am confident our portfolio of great assets in the best growth markets, run by our great teams, will hold GPT in good stead to build upon the remarkable performance of the past 12 months and deliver another productive year. 2022 – Continuing to evolve our portfolio and offering For the Retail portfolio at GPT, 2022 was a transformational year. Melbourne Central, Vic We celebrated recovery. During normal times, there is a direct correlation between retail sales and centre traffic. During periods of disruption (Global Financial Crisis, COVID), retail sales and visitation tend to bifurcate. At Melbourne Central, while customer visitation hasn’t quite returned to pre pandemic levels, spend per visit has hit a historic high. It is a shift in the way our customers use the asset that has led the recovery. Where it was traditionally a centre that benefitted from the convenience for CBD workers and students to shop on their lunch breaks or on their way to the train station below, people are now spending more time in the centre and spending more per visit, or they are making Melbourne Central a weekend destination. With the asset almost trading at 2019 levels, we are very excited for what this means as international tourism and students increasingly return to the Melbourne CBD. We celebrated growth. Being appointed to manage UniSuper’s $2.8 billion direct real estate mandate and the $2.7 billion Australian Core Retail Trust (ACRT), which complements our existing portfolio with the addition of world-class assets including Pacific Fair Shopping Centre (QLD), Karrinyup Shopping Centre (WA), and Macquarie Centre (NSW). With the appointments we were able to welcome many talented and passionate new team members to GPT, who have brought diverse thinking and additional perspectives to our entire business. These premium assets have seamlessly slotted into our retail portfolio, in alignment with our strategy of managing the best assets in growth markets and enhancing the productivity of our retail platform. We celebrated demand. Our centres are effectively fully leased and this demonstrates the quality of our assets and retailers’ confidence in our portfolio. GPT drives demand in our assets with our focus on sales productivity and precinct remixing, which resonates with retailers and shoppers alike. At Highpoint, the award-winning ambience upgrade completed in 2021 was quickly followed by the opening of our most-requested retailers, Kmart and Coles, along with additional flagship stores. As a result, the centre had its strongest year ever in 2022, rising to more than $1.15 billion of retail sales. We celebrated retailer strength. Off the back of strong sales and margin growth, our retailers are in the best shape imaginable. Having weathered a once-in-a-lifetime storm, they are standing tall with their shoulders back and, despite uncertainty, they are continuing to invest in growing their physical store platforms. Physical stores have regained market share from online, with almost 90% of everything purchased in Australia last year being purchased in a retail shop. Pacific Fair, Qld Our strategy is resonating While we will always continue to adapt and innovate, our success is underpinned by our consistent focus on providing the most outstanding experiences for our customers and this will remain true in the year ahead. The retail sector has been heralded for its incredible rebound in 2022. The best centres are flourishing, along with those retailers who can harness the power of their physical stores to draw customers and provide an experience that cannot be replicated online. Just as each of us relish the value of face-to-face contact in our personal lives, the most successful retailers are those that complement their online presence with a bricks-and-mortar ‘nucleus’; a physical space in which they can flaunt their brand’s personality to remain relevant with shoppers and build customer loyalty through an experiential offering. At Highpoint, Mecca physically expanded its flagship store to include a brand-new concept, ‘MECCA Aesthetica’, offering a curation of technology-led services carried out by MECCA’s expert staff, including in-store dermal therapists. As one of Australia’s leading retailers with an incredibly strong omni-channel presence, MECCA’s investment in this concept highlights the importance retailers place on having a bricks-and-mortar space, a nucleus, that is integral to the evolution of the brand to remain fresh, relevant and exciting for shoppers. Shopping centres are a collection of brand personalities from which great experiences are derived. Creating the most memorable occasions for our customers and retailers is intrinsic to the nature of GPT, through events, activations, innovation and convenience. Last year, we were excited to pioneer a number of innovative concepts in our shopping centres including first-to-market retailer concepts like the IKEA Plan and Order Point, our industry-first transaction-ready digital gift cards, and unrivalled events including internationally acclaimed artist Vance Joy performing for free at a packed Melbourne Central. While we pride ourselves on bringing first-to-market activations to our centres like the Harry Potter school holiday activation at Karrinyup or the Highpoint Close Up beauty weekend, our job is ultimately to put on a great show every day. No matter how big or small, we listen to what our customers want and then go to work to ensure we exceed their expectations. Highpoint, Vic As customers seek greater connection and better experiences, they lengthen their visits to our high-quality centres and spend more. Despite recent data showing that bricks-and-mortar retail has been reclaiming share from online shopping, this is no time to be complacent. We continue to investigate how we can use technology to better understand our customer needs, preempt their expectations and evolve our in-centre experiences, all while simultaneously solving the convenience conundrum. We focus on maintaining genuine partnerships with our retailers to draw shoppers into their stores, while helping them connect more effectively and efficiently with their customers through ongoing enhancements to offerings including Direct to boot, Click & Collect and Same Day delivery services. We’re using our real estate to help them solve issues that online cannot, and this is important to our experiential focus as we seek to solve customer pain points. It’s no surprise that a significant portion of our retailers’ online transactions are now fulfilled from their stores, with our malls also becoming micro distribution centres. The great portfolios will thrive It seems somewhat superfluous to say we are looking into a period of instability for the next 12 months. As discussions around consumer sentiment and interest rates go on, the conversation should shift to how this will impact the health of shopping centres and retailers. The pandemic was a global anomaly, which created a false sense of financial security with low interest rates, paused mortgage repayments and an abundance of government stimulus packages. The Australian cash rate at the time of writing is 3.35%. While this might be the highest it’s been in a decade, it’s still well below the historical norm. As consumers adjust to the new rate cycle, I expect spending growth will moderate rather than fall off a cliff. Applying that to the retail sector, the great centres have proven to be adaptable and resilient against the recent backdrop of uncertainty, and I expect this year will be no different. The centres that will resist cyclical pressures are the ones that are able to curate the most relevant mix of brands, product innovation, experience and customer service. With many retailers now wanting to recreate and reinvigorate their spaces, we use our data and analytics to define which stores will resonate best with our customers to drive sales productivity and in turn will add the most value to our assets. As customers become more selective about where to spend their discretionary dollars and time, we will continue to focus on elements of surprise and delight, which are fundamental as we evolve the retail mix and experiences available at our assets so that we are the preferred choice of retail destinations. If there is one thing we know from the past few years, it’s that we never truly know what’s around the corner. We may not know the full extent of what to expect in 2023, however we know that Australians will always gravitate to the best experiences. GPT continues to have a high-quality portfolio that offers excitement for shoppers, and it is for this reason I am optimistic about the year ahead. I remain confident the next 12 months will see a return to a more stable trading environment for our centres and retailers, notwithstanding the next round of challenges I’m sure we will face and overcome together.