Luxury retailing demand influencing Australia's property development

The Australian retail market was never going to be immune from the global forces of change which were unleashed in the mid 1990’s. Dynamic impacts from the internet, e-commerce, the digital revolution and the need for more efficient supply chains, spurred a new response by retailers to changed consumer expectations and tastes.  The E-tailing change has been widely chronicled however in recent years the rise of luxury retailing has become a notable trend and is now developing a life of its own. This transformation of the physical retail environment can be realised throughout the world. Increased household wealth and the strengthening of inbound tourism (notably from China), gave the luxury retailing market in Australia a sturdy platform for growth during 2014. The growing list of international brands seeking a presence in what is clearly an under-serviced market augers well for many luxury retail-oriented developments underway. As the segment continues to evolve globally, luxury has become one of the defining features of the Australian retail market.

Short-term Movement, Visitor Arrivals to Australia

Over the past five years, global luxury brands have nominated Australia as a key growth region. And with an increased willingness to spend up on higher-end brands, new plans to develop luxury retail premises (some co-locating with five star hotels), have taken shape in each of Australia’s capital cities, the Gold Coast and in Canberra.

Strong increases in tourist numbers from Asia; China in particular, is supporting spending on luxury retail. CBRE’s report “Luxury Retail 2015”, notes that 70 per cent of all Chinese-led industry luxury purchases are now transacted overseas, resulting in increased sales across the world.

Louis Vuitton Sydney_Feb2015The demand for luxury goods in Australia has strengthened in recent years - Louis Vuitton George Street Maison – Sydney.

The magnitude of the growth in the luxury retail market is remarkable. CBRE research notes that the growing prosperity in mainland China has seen sales in the Asia Pacific market surge from EUR 4.5 billion in 2007 to EUR 15.3 billion in 2014.

As luxury brand presence has proliferated in Asia, the growth in Australia’s offer has been relatively subdued. CBRE also notes that as of the end of 2014, over 90 per cent of international luxury retailers (monitored by CBRE) had at least one standalone store in the region. Furthermore, China (87 per cent) and Hong Kong (81 per cent) are the two most penetrated markets. Meanwhile in Australia, research indicates that luxury retailer penetration is relatively low at just 50 per cent.

Estimates of the share of global luxury spending, indicate that Chinese purchases represent between 25-30 per cent. According to Colliers International, the Chinese market accounts for over 25 per cent of the global luxury market, overtaking the Japanese as the world’s largest luxury shopper. With the growing trend of offshore purchasing by the Chinese – now the largest consumers in the market, Australia is well positioned to be in the mix as an attractive destination for the luxury brand segment.

Australian Bureau of Statistics (ABS) tourism statistics are shown on the chart below. It clearly depicts the rapid increase in Chinese visitation to Australia from 300,000 arrivals in 2006 to over 1 million by 2015. Spending by Chinese visitors in Australia has also risen sharply to be in the order of $5 billion, well up from $1 billion in 2006.

Projections released by brokerage firm CLSA research suggests that Chinese visitors to the broader Australasian market (Australia, New Zealand, the island of New Guinea, and neighbouring islands in the Pacific Ocean) will increase by an average of 22 per cent a year between 2014 and 2020 after rising 19 per cent per annum between 2009 and 2014. By 2020, CLSA expects 3.6 million Chinese visitors to Australasia.

The demand for luxury goods in Australia has strengthened in recent years and the medium term outlook is favourable. Forecasts for the sector by IBISWorld shows industry revenue is expected to grow at an annualised rate of 8.5 per cent over the five years to 2019/20 to total $2.4 billion. This may seem like a substantial figure, however when viewed in the context of global figures it is clear that the Australian share of the world wide pie of sales is modest.

In the 2013 financial year, Colliers International notes that the top 6 global luxury goods companies accounted for US$74.7 billion in luxury goods sales and US$92.8 billion total revenue. And while the new store openings have been highly focussed in Asia, the luxury segment in Australia has been comparatively slow to respond. Until recently, the Australian luxury retailing segment may have correctly been described as fragmented, with a high representation of international brands.  That description may no longer be valid, as 2016 will see dozens of new luxury international brands enter the Australian market. With more luxury brands establishing stores, access to these brands by Australian consumers has never been greater.

Chanel Melbourne_Aug2015The Sydney and Melbourne remain the leading luxury cities in Australia - Chanel store on Flinders Lane in Melbourne.

For too long Australian and visiting consumers had to be satisfied with a limited and lacklustre menu. However, the dramatic rise of Chinese visitation to Australia has led the change. This has not gone unnoticed by the plethora of global luxury brands. As Chinese visitation has increased so too has the number of global luxury brands, with each competing for the best site for their flagship store. Research from CBRE notes that 40 new foreign stores, many of which are iconic brands will open in 2016 with 18 stores in Melbourne, 10 in Sydney, seven in Brisbane and four in Perth. The new store brands include Moncler, Escada, Caroline Herrera, Rag & Bone and Missoni to only mention a few.

Luxury Shopping Hotspots in Australia Sydney and Melbourne have traditionally been regarded as the preferred destinations for luxury shoppers. While this is likely to remain the scenario over the near term, Brisbane, Perth and Adelaide are also benefiting from the surge in demand.

In a recent media release Colliers International stated that in Australia, half of all luxury retail stores are located within shopping centres; 29 per cent are in high street locations; and 11 per cent are housed in outlet centres. The balance is spread across airports, casinos and hotels.

The Sydney CBD and Melbourne CBD remain the leading luxury cities in Australia, accounting for 35 per cent of all luxury retail stores across the country. The Brisbane and Perth CBD markets have seen an increase in the number of store openings in recent years, however still only account for 9 per cent and 4 per cent of national stores respectively.

These ratios will increase for Brisbane and possibly Perth as development activity responds to market-led opportunities identified by international luxury retailers. Luxury brands already established in Sydney and Melbourne have also been busy expanding their footprint into other capitals. It is notable that this demand is being confronted by a limited supply of suitable floorspace. With limited space in premier retailing locations across Australia, these international brands have spurred on a wave of development and refurbishment activity. The accommodation requirements for several international luxury brands are currently responsible for the upgrade and repositioning of a number of existing and underperforming assets. Limited space in premier retailing locations has also created opportunities for mixed-use development.

Luxury store locations around Martin Place on George Street in Sydney have become increasingly sought after with very limited available space in Castlereagh Street and Pitt Street Mall. Sydney Airport will deliver a one-stop-shop for airport customers with planned commercial buildings and a five-star hotel with retail to accommodate both domestic and international (predominantly  Asian) tourists. Greenland Australia Investment is also offering Sydney CBD another luxury mixed-use precinct to include more than 800 apartments, parks, and a neighbourhood retail precinct. Sydney will also benefit from redevelopment projects, with Castle Towers shopping centre in Castle Hill set to become Australia’s second largest shopping centre upon completion.

Pitt Street SydneyLuxury store locations around Martin Place on George Street in Sydney have become increasingly sought after with very limited available space in Castlereagh Street and Pitt Street Mall.

In Melbourne, the Chadstone shopping centre expansion includes an office tower, a major retail extension and a hotel. This will serve to extend its existing strong luxury precinct and establish a dedicated casual dining area.

In Brisbane’s CBD, Rowes Arcade and Broadway on the Mall are being redeveloped to attract new luxury retailing brands. The major project on Brisbane’s horizon is the $3 billion Queen’s Wharf project which will incorporate high-end department stores; Harvey Nichols, Lane Crawford and La Rinascente amongst the list of potential tenants, together with Ritz-Carlton hotel and other major five star accommodation providers. The W Brisbane complex on 300 George Street will offer a 305-room hotel and a residential complex to accommodate demand for visitors seeking a contemporary luxury accommodation and retailing experience. Expected to open in early 2018, W Brisbane will deliver an interpretation of modern luxury to George Street at the western end of the central business district, overlooking the Brisbane River.

Queen's WharfThe Queen’s Wharf project will incorporate high-end department stores together with major five-star accommodation providers. Image Credit: The Echo Entertainment-led Destination Brisbane Consortium bid

The Gold Coast is also deepening the South-East Queensland luxury shopping offer through The Star Entertainment Group’s six star hotel development at Jupiters Hotel & Casino and the new luxury precinct at AMP Capital’s Pacific Fair, both in Broadbeach. Pacific Fair was Queensland's largest regional shopping centre until 2006, and will regain that title in mid-2016 after the current redevelopment is complete.

And in Adelaide, Blackstone has recently agreed to purchase Adelaide’s Rundle Place with a plan for high-end fashion and food precinct, the development includes 11-storey office tower and commercial space.

The Next Wave - Lifestyle Driven Shopping Experience  While the luxury retailing push is altering the retail landscape in Australia and globally, it is interesting to note another subtle change underway in this market segment. High-end brands are now providing a lifestyle shopping experience for their customers. Adding a food and beverage component is an innovation making a brand more diverse, transitioning it from being fashion-oriented to more lifestyle driven. This gives consumers a more layered experience. They can now shop, relax and socialize in places like Gucci in Shanghai and Cafe Dior by Pierre Herme on the top floor of Christian Dior’s flagship store in Seoul. By creating the lifestyle driven experience, luxury retailers provide their customers with a fuller shopping experience and reinforce brand awareness. Should consumers demand more of this approach to retailing then it is highly probable that it will become an established feature in Australia’s ongoing luxury retail-oriented development.

Gucci ShanghaiHigh-end brands are now providing a lifestyle shopping experience for their customers. They can now shop, relax and socialize in places like Gucci in Shanghai.

About the author:

Mark Courtney General Manager – Queensland E:  
Mark Courtney is MacroPlan's General Manager – Queensland.  Mark’s is an accomplished property professional whose experience uniquely positions him to provide leadership in property research and consultancy. He has considerable experience in the analysis and development of Australia’s industrial property sector, as well as extensive market trend analysis, feasibility assessment and land demand and supply modelling expertise.
About MacroPlan: MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Mark Courtney, General Manager – Queensland, today to discuss your property research requirements.