GRANT THORNTON BANKERS

BOOTCAMP 2019

Proper ty Market Overv iewMelbourne

ECONOMY

E C O N O M I C G R O W T H S L O W I N G A C R O S S A U S T R A L I A

STATE F INAL DEMAND OVER THE PAST 12 MONTHS

Source: ABS (12 months ending Jun 2019)

1.3%

1.9%

0.4%

-0.1%

0.4%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

NSW VIC QLD WA SA

An

nu

al ch

an

ge (

%)

V I C T O R I A I S S E E I N G T H E S T R O N G E S T P O P U L A T I O N G R O W T H

HISTORIC POPU LAT ION GROW TH BY STATE

Source: ABS y-o-y to March

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Po

pula

tio

n G

row

th

NSW VIC QLD SA WA

V I C T O R I A H A S A Y O U N G , W O R K I N G A G E P O P U L A T I O N

POPU LAT ION BREAKDOW N BY STATE

Source: ABS

0

50

100

150

200

250

300

350

0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91+

‘000 P

op

ula

tio

n w

ith

in a

ge b

rack

et

VIC NSW

RESIDENTIALStability Emerging

Source: Real Estate Institute of Australia

M E L B O U R N E R E S I D E N T I A L M A R K E TN E G A T I V E P R I C E M O V E M E N T L O O K S T O B E S L O W I N G

$785,000Median house price (June quarter 2019).

down 6.7% y-o-y but just 1.1%

lower in the quarter.

$590,000Median unit price (June quarter 2019).

down 0.9% y-o-y but 0.6% higher

in the quarter.$200

$300

$400

$500

$600

$700

$800

$900

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Median price ($'000)

Melbourne Median House and Apartment Prices (quarterly)

Median house price ($) Median unit price ($)

Source: Corelogic

30%

40%

50%

60%

70%

80%

90%

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

Sep

-17

Dec-

17

Mar-

18

Jun

-18

Sep

-18

Dec-

18

Mar-

19

Jun

-19

Clearance Rate

Sydney Melbourne Combined Capitals

M O R E B U Y E R S E N T E R I N G T H E M A R K E TQ U A R T E R L Y A U C T I O N C L E A R A N C E R A T E S

Source: Australian Bureau of Statistics; CBRE Research

M E L B O U R N E R E S I D E N T I A L M A R K E TM E D I U M / H I G H D E N S I T Y A P P R O V A L S H A V E D I P P E D F U R T H E R

-37%Medium/high density approvals are 36.9%

lower y-oy.

Large dip from November 2018 after a

strong 12 months.

21,981Medium/high density approvals over the

year to June 2019.

25,074Annual detached dwelling approvals.

Also dipping after spending most of 2018

above 28,000 (for the first time).

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Rolling 12-month approvals

Greater Melbourne Annual Residential Approvals

Greater Melbourne Houses Greater Melbourne Other

Source: Australian Bureau of Statistics; CBRE ResearchNote: Data covers approximately a 5km radius of the GPO

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

2018

-19

Number of approvals

Melbourne Inner City Building Approvals

Houses Units

49.4%

45.7%

31.4%

38.9%

39.3%

33.7%

31.7%

32.6%

17.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

2018

-19

% of metropolitan ‘other’ approvals

Melbourne Building Approvals - Inner Share (Units)

M E L B O U R N E R E S I D E N T I A L M A R K E TI N N E R C I T Y A P P R O V A L S V O L U M E A N D S H A R E H A S C R A S H E D .

OFFICESupply cycle ramping up

S T R O N G N E T A B S O R P T I O N E X P E C T E D T O C O N T A I N V A C A N C Y

A M I D S T H I G H L E V E L S O F N E W S U P P L Y

N E T S U P P LY, A B S O R P T I O N A N D VA C A N C Y I N T H E M E L B O U R N E C B D

Source: PCA Office Market Report Jan-19, CBRE Research

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

-50,000

0

50,000

100,000

150,000

200,000

250,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

sqm

Net Absorption Net Supply Vacancy (RHS)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Sydney CBD Melbourne CBD Brisbane CBD Perth CBD Adelaide CBD Canberra

Spread Ten-year low Ten-year High Current

L O W V A C A N C Y I L L U S T R A T E S C O N F I D E N C E I N M E L B O U R N E ’ S

E C O N O M Y

Source: CBRE Research

Source: CBRE Research/PCA 2019

N E T T E N A N T M O V E M E N T S L O W I N G I N M E L B O U R N E C B D

N E T T E N A N T M O V E M E N T

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

60000

70000

East Melbourne Melbourne CBD Southbank St Kilda Road

Net

Ten

an

t D

em

an

d (

sqm

)

H1 2018 H2 2018 H1 2019

O F F I C E Y I E L D S H AV E C O N V E R G E D

P R I M E A N D S E C O N D A R Y Y I E L D S I N T H E M E L B O U R N E C B D

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

2013 2014 2015 2016 2017 2018 2019

Prime Yield Secondary Yield

RETAILConditions remain challenging

Source: ABS, CBRE Research

R E T A I L C L I M A T E C H A L L E N G I N GA N N U A L ( R E A L ) R E T A I L G R O W T H P E R C A P I T A

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

Gro

wth

(%

)

Annual Change Average

Source: CBRE Research

C A S U A L T I E S O F T H E R E T A I L C L I M A T ER E T A I L E R I N S O L V E N C I E S A N D E X I T S

0

5

10

15

20

25

2015 2016 2017 2018 2019

Other retailing Household goods retailing

Food retailing Clothing, footwear and personal accessory retailing

Cafes, restaurants and takeaway food services

Source: Euromonitor, CBRE Research

M I D - R A N G E A P P A R E L B E A R I N G T H E B R U N TI N S O L V E N T R E T A I L E R S B Y T Y P E 2 0 1 5 - 1 8

MID-RANGE APPAREL

47%

BAGS,

JEWELLERY &

ACCESSORIES

8%

HOMEWARES

8%

HIGH-END

APPAREL

9%

FOOD & BEVERAGE

11%

HARDWARE /

HOUSEHOLD

GOODS

9%ELECTRONICS

4%

DISCOUNT/VALUE

4%

Source: CBRE Research, company accounts

K - M A R T O U T P E R F O R M SS T O R E C O U N T A N D S A L E S P E R S T O R E

0

50

100

150

200

250

300

350

$0

$10

$20

$30

$40

$50

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

2017

2018

Kmart Target Big W David Jones Myer

($m

)

Store count (RHS) Sales/store (LHS)

Source: REIT report and accounts, CBRE Research

C A P R A T E S S O F T E N I N G I N S U B - R E G I O N A L SC A P R A T E C O M P R E S S I O N A N D C U M U L A T I V E I M P A C T O N V A L U E

0%

2%

4%

6%

8%

10%

12%

14%

16%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

Jun-2015 Jun-2016 Jun-2017 Jun-2018 Jun-2019

Neighbourhood Sub-regional Regional Neighbourhood Sub-regional Regional

Impact on v

alu

e

LOGISTICSConditions softening

A U S T R A L I A N I N D U S T R I A L A N D L O G I S T I C S G V AC O N T R I B U T I O N T O I N D U S T R I A L I N D U S T R I E S G V A G R O W T H

Source: Australian Bureau of Staistics

-4

-3

-2

-1

0

1

2

3

4

An

nu

al C

on

trib

utio

n (

%)

Manufacturing Utilities Construction Transport & warehousing Wholesale GVA - Industrial

0

100

200

300

400

500

600

700

800

900

1,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Lan

d V

alu

e (

$p

sqm

)

Greater Adelaide Greater Brisbane Greater Canberra

Greater Melbourne Greater Perth Greater Sydney

S Y D N E Y H A S S E E N S I G N I F I C A N T G R O W T H I N L A N D V A L U E S1 . 6 H A L O T L A N D V A L U E S B Y C I T Y

Source: CBRE Research

60

70

80

90

100

110

120

130

140

150

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Net

Ind

icative

Ren

t ($

/sq

m)

Greater Adelaide Greater Brisbane Greater Canberra Greater Melbourne Greater Perth Greater Sydney

L I M I T E D S U P P L Y H A S D R I V E N M E L B O U R N E A N D S Y D N E Y ’ S R E N T A L G R O W T H I N R E C E N T Y E A R S

S U P E R P R I M E N E T F A C E R E N T S

Source: CBRE Research

SUPER PR IME INDUSTR IAL RE -RATED

B E S T I N C L A S S N A T I O N A L P R O P E R T Y Y I E L D S

Source: CBRE Research

4%

5%

6%

7%

8%

9%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Office Super Prime Industrial Regional Shopping Centres

O V E R S E A S I N V E S T O R S H E L P I N G D R I V E D O W N Y I E L D SI N D U S T R I A L T R A N S A C T I O N S B U Y E R O R I G I N

Source: CBRE Research

Domestic

81%

Offshore

19%

2 0 1 3 - 1 8

Domestic

97%

Offshore

3%

2 0 0 0 - 1 2

CAPITAL MARKETSMore yield compression to come

Source: CBRE Research

AUSTRAL IAN COMMERC IAL PROPERTY INVESTMENT

2 0 1 9 S H A P I N G T O B E A N O T H E R Y E A R O F H I G H V O L U M E S

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sale

s V

olu

me (

$m

)

Industrial Office Retail

AUSTRAL IAN BANKS LOS ING MARKET SHARE TO AS IAN BANKS

A U S T R A L I A N C O M M E R C I A L R E A L E S T A T E D E B T

Source: APRANote: Covers major domestic banks and all foreign banks

11%

22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50,000

100,000

150,000

200,000

250,000

300,000

% m

ark

et

share

$000s

Australian Commercial Real Estate Debt Market

Major Domestic Bank Actual Exposure Offshore Bank Actual Exposure Major Domestic Bank Share Offshore Bank Share

F ORE IGN BANKS HAVE NOW ALSO CHANGED TACK

R E D U C T I O N I N R E S I D E N T I A L E X P O S U R E S A F T E R S T R O N G G R O W T H

Source: APRA

36.2%

27.2%

39.5%

-10.7%

18.2%

-17.5%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2014-2017 2018-2019% change in actual exposure

Three Main Sectors Other residential Land development/subdivisions

Source: CBRE Research

THE CASE F OR Y I E LD COMPRESS ION

Y I E L D S P R E A D S – P R O P E R T Y O V E R B O N D S

0

50

100

150

200

250

300

350

400

450

500

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Spread (basis points, RHS) 10-year Australian Government Bond Yield Australian CBD average prime office yield

Source: RBA, CBRE Research

PROPERTY Y I E LDS TAKE T IME TO AD JUST

Y I E L D S : A U S T R A L I A P R I M E C B D O F F I C E A N D 1 0 - Y E A R B O N D S

0%

1%

2%

3%

4%

5%

6%

7%

8%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Australia Prime CBD Office Aus. Govt. 10-year bond yield Trend bond yield (24 mma) lagged 12 months

r = 0.61

r = 0.82

Forecast

T H A N K Y O U