Rebecca Kent
Matt Healy, hello and thanks for joining us.
Matt Healy
Good morning, Rebecca.
Rebecca Kent
And Lee McLaughlin, hello!
Lee McLaughlin
Hi, Bec.
Rebecca Kent
So, Matt, first question over to you, which retail assets are you seeing holding up amid the COVID pandemic and why?
Matt Healy
There's no question that that neighborhood convenience orientated, non discretionary focused assets have proven the most resilient. Effectively the assets that have a tenancy composition that have a higher proportion to essential services, whether it be supermarkets, pharmacies, medical facilities, and daily needs, those assets and that asset class has most definitely outperformed the larger fortress type malls. There's a number of reasons for this. These assets are typically located in locations that are more convenient to access and also have floor plans that are easier to navigate and also have larger on-grade car parks which have fared well during the social distancing and trading restrictions that have been enforced by the government.
Rebecca Kent
And that’s on-grade carparks which describes parking at ground level, as opposed to multi-level or underground parking. So, neighbourhood retail is an Elanor specialty. No doubt the resilience these assets have shown have you keenly spotting opportunities.
Matt Healy
There's no question there's continued liquidity and investor support for defensive, supermarket anchored, convenient-space retail that has proven to be the most resilient and have sustainable cash flows during this pandemic. I see that thematic continuing as the market truly does recognise that those assets and that asset class provide relative shelter during what has been a challenging trading period during the COVID pandemic.
Eleanor as a business has traditionally invested in these defensive non-discretionary orientated assets, which in the past have outperformed by providing relatively higher risk adjusted returns.
As a result, our portfolio has actually proven to trade exceptionally well. And this resilience that we've seen over the last three months, has seen us really continue seeking out high-yielding income-oriented assets that we believe through leveraging our expertise and our experience in repositioning and providing additional mixed-use property forms to those already very dominant and defensive retail assets, we believe that there are a number of opportunities within especially the east coast market, especially in regional locations, where the there's most definitely an asset class of A$75 million up to $150m in value, where there's mixed-use potential that that also provides very stable defensive risk adjusted cash flows that are sustainable in nature.
Rebecca Kent
So, there's capital out there for those type of assets. One, from where is it originating? And two, how are investors looking to place it?
Matt Healy
A lot of that capital is inbound from Asia. Australia is increasingly being seen as an attractive investment destination. A lot of capital is seeing Australia as a safe investment destination. And they also look at quite a sophisticated property sector, that that has retail, which compared to other jurisdictions throughout the world, a composition of an asset class that has a diversified income stream compared to malls in the United States and in Europe. Australia has is very much at the forefront in having shopping centers that do have higher proportions of the GLA and the income that is generated from non-discretionary means. Capital is most definitely looking for assets that provide the higher risk adjusted returns, but have a diversified income stream that the investors can see visibility of those cash flows in the short to medium term. And typically, they're then wanting assets that do have a value-add component that do have a blue sky element in which they can supersize their returns. That's the investor that we're seeing come out of Asia and typically the investor that Eleanor's is attempting to cater towards.
Rebecca Kent
And, Lee. Let’s bring you in here. Retail has been undergoing some pretty fundamental adjustments for quite a few years now. But certain trends have evolved faster than they ever would have done pre-pandemic–click and collect, for example. What are you seeing across the shopping centres you manage?
Lee McLaughlin
I think landlords and brands have been on this journey for a while in reimagining what retail space would be like Matt was saying, you know, being able to unlock that capital value of an asset. Well, that's more than perhaps what we traditionally thought a shopping center would do.
So, what other part can it play in the community that it sits within? Whether that's mixed use, whether that's aged care, whether that's hotel or accommodation -we're having lots of conversations around that, and how that flows through to retail.
And I think with the pandemic, it was really interesting how quickly that speed to change happened to your point, click and collect. So, we had smaller neighborhood destinations that perhaps had an aging demographic, where we were able to arrange for pharmacies. For example, they could get onto the portal, get onto the website, organise medications, and it'd be taken out to their car.
We did that for supermarket as well. So, we were reconfiguring car parks so that people could shop online, they would have their designated time they would come in, and a staff member would actually bring it out to their car. So, it was really fascinating. And those things happened quickly. So, that idea was in concept for 48 hours and within 72 hours to a week it was rolled out. And when you're talking about major brands which might have hundreds of locations, it was fantastic how everyone pulled together.
So, I think that collaboration piece will continue and looking at different ways to as I said, use that retail space.
I know of a couple of landlords who are actually looking at taking vacant space. So, we know that there are some retailers in distress, and who may not make it through this, even with the support of owners.
So how do you convert that that space into changing what that retail destination could be? So, some are looking at even co-working as an option or a derivative version of what that might be. So how could that add value back into the community? So, there's lots of conversations like that.
Rebecca Kent
Really interesting. So, the local shops are not just for the grocery run. I guess it is common now to see medical clinics in those places. But coworking, as you say, Lee, is more of an emerging trend. There is a coworking operator WOTSO, which has set up in a Westfield shopping centre in Chermside, a suburb north of Brisbane. I understand that has been very successful. Other suburban retail spots are being transformed into almost mega, unrecognizable mixed-use urban developments. Matt, what are some ideas Elanor has up its sleeve for its assets?
Matt Healy
One thing is for sure, the solutions for yesterday and not going to be the solutions for the retail, transformation and evolution today. A lot of that comes back down to us looking for a very creative, innovative and agile lens.
When we look at what we're going to do with the built form of a shopping centre, that's increasingly seeing us provide solutions that are non-retail.
We’re typically taking assets that have a defensive income stream, making sure that the retail is set up for sustainability, that is, the occupancy costs via your trading partners, which are your tenants, their rent profiles are on sustainable footing, such that the capital and the investors that that are actually coming along for the journey to start with see visibility of those cash flows.
We then look at really what we can do to that asset that can actually provide the opportunity to really play towards a global phenomenon, which is people wanting to live work and play in an integrated and central location.
But that sees us looking at potentially integrating co working, office, medical, health and wellbeing, residential, aged care, serviced departments.
No one solution will fit a particular property, depending on where it's located, the demographic of that trade area, and not only the demographic that currently exists in that particular suburb or that city, but more importantly, what's happening with migration and what's happening with education within that trade area that is going to ensure that it's a different customer that's going to be not only shopping at your particular centre, but also buying your residential apartment or visiting the office tower that you're going to create.
So, we see the first six to 12 months of any investment journey being the most crucial in that you needed to start with a broad and blank canvas, and determine what the size of the prize could look like.
In that regard, these assets that we're buying, typically town centre locations, have great proximity to infrastructure, have seamless connection to floor plates of cars. There's no reason why we can't continue integrating all the different types of property asset classes into true mixed-use centers. And that's what we're continuing to do at Eleanor.
Rebecca Kent
You talk about that crucial six to 12 month period, during which time no doubt you’re poring over sets of data that can indicate who your future customers might be. But Lee, how do you ascertain trends on a more micro level that can support redevelopment decisions?
Lee McLaughlin
So, there’s the usual metrics-the sales and the traffic and the occupancy costs, and we've used those for years to be able to either predict where we've got successes that we might want to capitalise on, or we have weaknesses that we might want to bolster.
But really interesting at the moment is that we have these huge outliers. You've got pockets of retail that are doing extremely well and you have pockets that are doing poorly. So, our job in that active management piece is, it's not a passive process, you've got to keep the proverbial finger on the pulse.
So, it's really important that we look at those retail sales figures but in the context of the environment that we're in. So, the retail sales figures offset by the increase in household savings, which is offset by the consumer confidence that we need, in perhaps the certainty around JobKeeper, to be able to make some of those strategic decisions.
So, from a micro perspective and trying to, advise our owners of what the next few months is going to look like, we're drawing on a much bigger sort of data set in a sort of economic sense than perhaps we would have previously.
And it's just, it's just a really, really fascinating and interesting process.
Rebecca Kent
Thanks, Lee. And something else very interesting if I can just jump to a different topic, is the way different retailers are fulfilling online orders and trying to get them to customers as quickly as possible. What’s the role of the shopping centre here?
Lee McLaughlin
We've been talking about omni channel for quite a while, it seems and this has escalated a lot of things. So, I think what's to underpin this is you have bricks and mortar retailers who perhaps had to close their doors. But then we're experiencing double and triple digit sales growth. So, you can only make assumptions around margins and perhaps the profitability of that was extremely successful for them.
So how do they find that portfolio balance? And then how do they resolve that logistics piece?
I think it is a really interesting one. I know of a couple of I'll say delivery brands, if you like, of parcels are actually looking or having early conversations with owners around ‘well, do you have underutilised carpark? Can we use that as perhaps-we want to go to electric vehicles -can we perhaps do charging stations?’
So sometimes it's not coming up with the whole last-mile solution. Sometimes we can actually be part of the half-mile solution by offering up space like charging stations.
Click and collects parcels - something that Amazon's been very successful in is having that parcel locker system. Australia Post as well. I think we'll start to see a bit more of that.
Rebecca Kent
The half-mile solution, Lee. Love it. Well, given conversations are already happening to deliver new iterations of the suburban shopping centre, my final question for you both is what does the shopping centre of the future look like?
Lee McLaughlin
Way to end on a very expensive question, Bec!
Know the location that you're sitting within.
So, we’ll start with suburban. In that suburban environment, if you have a demographic that is skewed to an ageing population, there might be certain level of affluence. Is there a way to change the weighting of your asset and the usability of your asset to either have a medical component or there perhaps is an aged care component? So, shifting the weighting of retail and it being a very data-driven exercise, not only what's now but where is it going to be in 10 years.
That's how you unlock that capital value of the asset.
But even from a human aspect, you become a fabric of the community, not this sort of built form that just kind of sits there and if you build it, they will come.
In that CBD component look, you know, Matt correct me if I'm wrong, but I think that experience component is going to be even more important. It’s something that I think that CBD destinations do extremely well. And that there's a level of expectation that a) if you're making a trip into the CBD on a weekend, you need that extra driver beyond a transaction. And if you're doing it through the week, when perhaps you're ducking out of the office or just going for a walk in the afternoon, your experience level, again, is still more than a transaction. So how do we engage with that person?
And look, I remember seeing in the US, you'd have Tiffany, and you'd have all of these pop stars that were playing shopping centres. I don't necessarily think it's going to go to that extent, but we did one in the CBD that was a light installation on behalf of ISPT, and it was just, you went in there and it responded to all the music and it would change all the time. That's that type of experience is what consumers are wanting.
Matt Healy
Yeah, very difficult question to answer but one thing for sure is that staying still in the retail, property development and operational space is going backwards.
I think that the centre of the future, whether it be CBD or whether it be well located, suburban and regional locations, will have a true mixed-use component and be truly multi-sector in terms of what it provides.
People have an emerging hunger to want to live work and play in an integrated, well-designed and functional environment that also plays to all of the emerging thematics. Whether that be sustainability, whether that be ensuring that the transportation and commuter times that have been a trend over the last20 to 30 years are eradicated.
One thing is for sure that over the next five years, it's going to be the nimble, the agile and the creative landlords and retailers that will flourish and prosper. They’re the landlords and retailers that work together to play to the customer demand and changing preferences: to have flexibility, to have functional developments and centres that actually capture all of the essential services that we need. But also allow the sensory delight, the experience, the entertainment factor, that actually allow people to integrate, connect and do all the things that they've done in the past, which they're not necessarily doing anymore because of the advent of the information technology age.
Rebecca Kent
That’s a great set of principles from you both there, which is very helpful for visualising a successful suburban shopping centre in the not too distant future.
Matt Healy from Elanor Investors, and Lee McLaughlin, from JLL, thank you for the chat.
Matt Healy
Thank you very much, Rebecca.
Lee McLaughlin
Wonderful to talk to you Bec.
Rebecca Kent
If those insights from Matt and Lee were useful to you, you may also like our bonus episode, where I interview Chris O’Donnell, general manager of confectionery at Nestle, about the opening of the KitKat chocolatory in Sydney. You can find that by searching JLL Perspectives Podcast on all good streaming sites, or visiting jll.com.au/perspectives-podcast.
Catch you next time.
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