WEBVTT
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This episode was recorded on the land of the Wurundjeri people of the Kulin Nation.
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We pay our respects to their elders, past, present, and future.
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Hello and welcome to a bonus episode of Precisely Property.
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I'm your host, Richard Timlett.
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I'm excited to have you with us today.
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If you're a longtime listener, you'll know we are taking a short break and working on something exciting for season five.
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So stay tuned for that.
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If you're here for the first time, thank you for joining us.
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I encourage you to listen to our previous episodes where we discuss all things property with a focus on dynamic discussions with industry leaders.
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In this episode, we'll be talking about the changing retail property landscape, capital, supermarkets, and long-term value with Don Folds.
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So sit back, relax, and let's get started.
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Don Folds is a national director and retail advisor at Charter Care Kramer with more than 20 years of experience advising Australia's major retailers, investors, developers, and finance groups.
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He specializes in retail centres and mixed-use developments, bringing deep market insights and a proven track record in delivering award-winning projects.
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Welcome, Don.
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Thanks, Rich.
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Great to be here.
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Don, I'm so excited to have you on the show and also really happy and privileged that you're the first internal person from Charter Care Kramer to have on the show.
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I've got to know you over the last uh six months to a year, and I think you're an absolute wealth of knowledge in the retail space, the retail advisory space.
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I pick your brain quite frequently just to learn more about retail advisory and the topics that we're going to talk about today, I think are incredibly valuable.
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I do a lot of work in the residential space, but um a lot of the work also actually does cross over into the retail elements.
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And so talking about the trends and what's happening on the ground in the retail space and a couple of key themes which we'll unpack in a second, I think will be very valuable given that a lot of people right now are actually looking at where the opportunities are in the market.
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And so just to let our listeners know, that the three themes we're going to talk about today, um the first one is really why capital is pouring back into shopping centers.
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The next one is why supermarket-based centers are being revalued.
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And then the one certainly that's the most interest to me, and I and I would be interested to know what our listeners think is why supermarket leases are more important than cap rates.
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And I must admit, when I read that one, I went, oh, this has caught my interest.
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I need to talk to you a little bit more about it.
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And it's actually fascinating to learn more about the leasing structures and things like that and how value can be created and captured.
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So I can't wait to get into the session with you today.
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Um so I suppose let's let's kick things off, Don.
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Let's start at the top in terms of why capital is pouring back into shopping centers.
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Yeah, look, I've always really been a supermarket shopping center guy.
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Uh, and to me, it's always been a relatively safe industry or sector to be involved in.
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It does involve everyone.
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Everyone knows a shopping center, everyone goes there.
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Probably what we had 15 years ago was a few disruptors in the market.
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Uh, online was creeping in.
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Um, people weren't sure about discretionary spend, where that was going.
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And the whole retail shopping centre market over the last five years seems to have stabilised somewhat.
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People are a lot more comfortable with what's going on with shopping centres.
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And that's covering off the large regional, um, sub-regional, and neighborhood shopping centre markets.
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Um, I think a big driver, too, has been the shift from typically the private investors and owners that would own, uh, particularly neighborhood shopping centres, and the REITs and LPTs now uh turning the light switch back on.
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And again, 10, 15 years ago, many of these were the same REITs getting out of the industry, uh, typically because of lease structures and no lack of growth.
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Uh, now getting back into the market.
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It's recognized as a very stable industry.
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Um, funds are coming in in terms of new funds being set up, and every month you hear about a new fund with a billion dollars to invest in shopping centres.
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And in a market that's kind of worth 250 billion.
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Some of these numbers have big impacts in terms of the investment that's coming in.
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So it's actually turned into a buying market rather than a selling market, with the majority of shopping centre owners, or particularly neighbourhood shopping centres, being approached weeklies, if not daily, for a sale and the demand from the REITs and the LPTs looking to enter this market.
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Wow.
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Is that at a national level or is it city or state specific?
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Well, I guess Rich, the good thing about retail is it tends to be a very national industry, and state by state, the cap rates tend to be fairly stable across the portfolios.
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Um, certainly the REITs and LPTs are targeting certain sectors, metropolitan locations, uh, supermarkets close to percentage rent and low vacancies, and probably cherry picking the lower, the lower risk style centres.
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But as a general rule, across Australia, the national cap rates tend to be fairly stable across all sectors.
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Okay.
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Um let's talk about shopping centres and and why, in your view, uh they're back.
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Let's let's talk about transaction activity.
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You started talking about obviously cap rate compression.
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I'm also interested to know you you talk about defensive um asset classes.
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So, what does it all mean for the people that are not as close to the segment of the market as you are?
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Yeah, thanks, which there's been a few buzzwords thrown around of late um everyday needs, uh, non-discretionary spend.
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To me, that tends to be more the uh supermarket with a neighborhood shopping centre with five to ten shops around it, uh lower discretionary spend and more everyday needs spend.
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Um, to me, really a key driver has been the fundamental aspect that if you look at a supermarket itself, the tenant actually has value in the property.
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So they're invested in the site.
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And you might have you know read Woolworth's profit last year at um 2.5 billion.
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So if you sort of look at terms of a thousand supermarket, that works out to be about 2.5 million EBIT per supermarket in value.
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So your tenant is actually invested in the property, as you as a landlord are also invested in the property.
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And in an ideal world, it comes together where both the tenant and the landlord are investing together to grow the centre, to grow the sales.
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That can often get challenging, and we can talk about that later.
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But it's that ideal combination of a tenant wanting to be there and investing in their property and a landlord owning a quality asset and investing in it as well.
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That's really interesting.
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I I'm keen to just pick up on that point now about just the value of the tenants to the shopping centre.
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And um obviously I'm not as close to this segment of the market as you are, but I did find that fascinating.
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Are you so if you have, for example, a neighborhood shopping centre and you've got like a Woolworths or a Coles and you've obviously got a bunch of other tenants in the building, are you talking about the value of the really is it the anchor tenant that creates that value, or all the tenants do they all create that value, or how does that all work?
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Certainly all very closely aligned.
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The the supermarket is always referred to as the anchored, or the or the major tenant is always referred to as the anchor, and the supporting specialty shop hanging off that.
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And key for a shopping centre these days is all about convenience and wanting the customer or the customer wanting to go there and servicing their needs.
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So the supermarket businesses have been around for a long time.
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They're very well rehearsed and honed in terms of design, getting the right layouts, outcomes, convenience, car parking and accessibility.
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All of these factors then feed onto the specialty shops.
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And typically I would say along my journey when I'm designing shopping centres, I'm not just looking at the supermarket, but I'm also looking at the flow for the specialty shops as well to make sure everyone works.
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You don't really want a dead end of a centre, you want everyone to work and everyone to move in the right direction.
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Are you, just so I understand, are you able to help with um the layout of these centres, the foot traffic, how the different uses interact with one another based on your previous experience?
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Yeah, look, I guess along the way, delivering so many shopping centres, and you know, every everyone's a little bit different in their way, but you typically we don't really start talking about the commercials or rents.
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It's really about the design, what can I get there?
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Can I get the utopia box and layout, car park, access and convenience?
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And then we tend to flow onto the commercials and that side of things because often if you can't make it work from a convenience perspective, it's always going to be a secondary style centre.
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So there's a lot of effort put into layouts, trolley bays, car parking locations, uh, shade sales, all sorts of elements that you probably don't really consider.
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And when you do a supermarket deal, they actually give you a very prescriptive brief in terms of what you have to do.
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Not to scare you off, it's about a hundred meg in size, so you can imagine what comes across and everything down to size of car parking bays, down to the material for the shade cloth in the car park.
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It's it's very detailed to try and make sure everything works in succinct to make the center flow and work well.
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And so this just to bring our listeners up to speed, you've obviously um well I suppose let's bring them up to speed.
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Where have you previously worked um and and your connections um and and what are they?
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Yeah, look, I certainly moved quickly into property.
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I started off in local government as a civil engineer, and I certainly moved through the catches of facilitating development and getting things done.
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And along the way, I sort of moved into retail, which was the 7 Eleven move.
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And that primarily came from meeting the 7-Eleven team looking to do a development at the municipality I was at and looking for a bit of planning facilitation advice, and then them saying, Well, you might might actually be a good guy to come and work with us.
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So I moved into their role to get a role out of convenience stores in the CBD.
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Um, from there I moved to Coles and I was there for sort of 10 years, and I moved on to Woolworths after that for about 15 years and predominantly been involved in the supermarket businesses the whole journey.
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So I know an awful lot about supermarkets, but I wouldn't say I know a lot about the other sectors.
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Gotcha.
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Well, look, I wanted to tease out both both your um your stints at Coles and Woolworths, because we're going to get into certain stats and obviously particularly the the value created by those leases.
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Um but before we do that, I why I wanted to why I asked you where you worked is you you basically spoke about the design of the centres and you get the brief.
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I'm assuming is that brief from the Woolworths or the Coles in terms of saying this is the car parking base we need, the shade cloth, because that's a significant amount of bargaining power from a tenant.
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Um is that just because of you know the the size of them in the sector, or um what can you share some thoughts on that?
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Yeah, it's probably comes around the volume of deals that the majors need to do each year.
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And both Coles and Woolworths would ideally like to open 20 supermarkets each a year, and we can get into volumes later on.
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But for them to do 20 deals a year, they've probably got to be doing 30 because 30% tend to fall off along the way.
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Um, they do have a very prescriptive formula, they do have a uh a playbook in terms of what they can give and can't give.
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So you will start off with a four-page heads of agreement, uh which will then flow to a an 80-page lease followed by a 60-page agreement for lease, followed by your 100 meg brief kit, what to fit out.
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What people probably don't really understand is when you deliver a shopping centre uh as a landlord, you do a fundamental amount of uh builder landlord lessee works along the way.
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So if you've took a supermarket and turned it upside down and shook it out, everything that's left is what the landlord provides from the kit, and that's everything down to tiles on the walls, um, shade sales in the car parks, backup generators, air conditioning plant and equipment.
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So it is a very labour-intensive intertwined combination between less C and less ore from the very start.
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And that's probably why it has to be so detailed, because a lot of the works overlapping when the tenant comes in to do their fit out, that a lot of those works have to occur before the handover occurs, like drainage in the slab and refrigeration cases and things like that.
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So they can be very uh complicated in terms of delivery, but you do tend to find that there's a select group or and you know, four or five builders in each state that specialise in the delivery of these centers.
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So you work hand in hand together along the way.
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And while all information is incredibly detailed and onerous, it does actually guide you through the process from start to finish.
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Very interesting.
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Um, I'm keen to talk a little bit about stats, and we'll keep pushing through a bunch of the topics and issues that I would like to talk to you about.
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But um, I know when I was preparing for this with you, you had figures on the number of stores that Woolworths and Coles had.
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You had the basically the market share.
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Um, you started talking about how many stores they are trying to or aim to open each year.
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Um, are you able to just educate our listeners on on what the size of the market is?
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I guess when we talk about the Australian market, it's predominantly Woolworths and Coles, and together their combined sales are around$90 billion, which means they represent around 65% of the total food market in Australia.
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Um at the moment, Woolworths has around 1,040 stores, and Coles has around 860 stores.
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And I come back to that need for them to grow and drive their store numbers each year, and they typically want to grow and deliver another 20 stores each per year.
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And every year I often thought I was going to run out of stores to find and what was going to do, but every year you keep going along.
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The fundamental driver for that is a supermarket chain will open up a new store and they might pick up brand new sales from day one.
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So they could pick up a$40 million sale from that investment.
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If they go and refurbish an existing$40 million store, they might pick up 10%.
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So they don't really pick up an extra$4 million.
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So the big bang for Buck is supermarkets opening brand new stores and increasing market share.
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Now they will do and move with the market what they need to do to get those stores open.
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And I recall times through the GFC where we turned into banks and we were lending money to developers.
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Um we we might get, you know, typically of a 20-store pool, 10 stores would be delivered by the private market.
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Five stores would probably be delivered by the shopping centre majors themselves, so their own in-house development teams, and five would be driven by the REITs and the LPTs.
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So this is where you come back to the soup market and supply chain that the majority of the new stores actually come from smaller privates and one-off deals, not so much the centres and the vicinities and those people of the world.
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But again, in terms of the flexibility to get the stores open, we we talked about funding developments.
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The in-house development teams might get busier and take on more projects if the market can't deliver.
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And in recent times, there's been a lot of joint ventures happening in the market where with mixed use you might pal up with a residential developer to do a development.
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But interesting, we're at a really peak time now with cap rates and demand, but there were times when it wasn't so rosy.
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And I go back to 2012 when Wooers had a had kept developing centres, and when they developed so many each year they compounded and they ended up with about 69 centres and had to set up their own fund and float that off into the market.
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That was the SCA region group at the time.
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And, you know, back in those days, there wasn't really a buyer to take on all of those stores.
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So to be a bit creative, the retailers went down that path.
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Around the same time in 2013, Coles paled up with ISPT and IFM and did a joint venture along the way for them to buy out stores at completion as well.
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And you might have just noticed in 2026, Woolworths um selling a group of stores to Forest Endeavour, 10 assets, and that just gets those off their books and they can go again for new stores from there.
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That's fascinating.
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I actually did see that headline.
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All right.
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Um, as you're talking, I did have a couple of notes.
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The the first one I wanted to talk about, and excuse my ignorance, I've seen that both Woolworths and Coles, they seem to have opened also almost smaller footprint stores.
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Um I don't know.
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I think you've mentioned it to me.
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I can't remember what they were called, but but you obviously know the names.
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Is that correct?
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It's basically like the the smaller footprints.
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Um, like the I can't remember what it's actually called.
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Is that am I seeing things or is that actually obviously part of their deliberate strategy?
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No, there are smaller stores creeping into the market.
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I would say the primary engine driver behind both Coles and WooWars is full-line supermarkets.
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They're typically 3,600 square meters.
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They carry about 20,000 line items in there.
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And, you know, they like to every store to be the same, layout to be the same.
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It's a delivery convenience, operational uh efficiency model.
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Um, you will see some smaller stores creeping in, and there's the Coles Local and Woolworths Metro.
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That's it, yes.
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Are the two.
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Um, you know, their success, they really do fill a gap in areas where you're not going to get a full-line supermarket.
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I wouldn't say they compete head to head with a full-line supermarket.
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So if you have a full-line Coles next to a Woolworths Metro, the full-line Coles will always win.
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There is a perception with the smaller stores that they're more expensive to shop in.
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They have a lesser range.
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And customers are very unforgiving in today's market.
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And if they cannot get their usual product range, they will go somewhere else.
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And Rich, there's really limited customer loyalty between customer wooers, maybe about 7%.
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If you had two stores side by side and you said you were a Coles guy or a WooWars guy, you're really going to go to the most convenient center you can.
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They have tried to go into smaller convenience style stores, and they just didn't work.
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And that that seems to be a trend that comes and goes now and then.
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That's fascinating.
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Um, the other point I wanted to talk to you about just was online retail.
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And I saw in some of your stats that there's obviously been the take-up of online.
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Um, but I was also interested in the concept of click and collect.
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And I remember discussing with you, you're talking about like the you've gone back to saying that the store, you like you've observed that the stores they need to have the correct layout and have because it just it's an efficient process.
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How has click and collect and online retail impacted the layout of the stores and I suppose just the sector more broadly?
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This was often the page in my presentations that has changed the most over the years.
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And you know, it's interesting to watch the transition grow and the percentage of supermarket sales to online.
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And I've often compared these percentages to overline, overseas Tesca as the those sort of stores.
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Um in the Australian market, we sort of kicked off around about 2016 with a very humble 4% of sales.
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So you can imagine a you know typical supermarket doing$40 million in sales a year, so 4% of that being online into today's dollars that it seems to be leveling out somewhere around about the 14% of sales.
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And when I talk about online sales, there's two there's two different elements to that.
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One is where a customer comes and picks it up from the store, and Coles would call that click and collect, and Warwick would call that direct-to-boot.
00:19:58.559 --> 00:20:05.119
And then there's the complementing home delivery sales, where you get the product delivered to your house.
00:20:05.359 --> 00:20:21.359
What the big shift has really been was, you know, back in the early days, it was a two-day delivery time frame and a six-hour window when they might turn up to now being a same-day delivery service within a two-hour time period.
00:20:21.519 --> 00:20:24.559
So the actual convenience factor has greatly improved.
00:20:24.720 --> 00:20:29.920
Um, people still don't like being locked into having to be at home to get the groceries.
00:20:30.079 --> 00:20:42.240
Um, people seem to like the going to the store and picking up and controlling technology's growing with this, where you can click on an app and say you're coming and the stock will be ready when you get there and it's put straight in your boot.
00:20:42.400 --> 00:20:53.119
Um, the businesses are sort of saying that you know the online picking up from the store seems to be the more dominant sector at the moment, more than the home delivery sector.
00:20:54.240 --> 00:20:57.920
Quickly interrupting this episode to tell you about Charter Kit Kramer.
00:20:58.319 --> 00:21:05.839
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00:22:14.079 --> 00:22:15.920
Now let's get back into the episode.
00:22:17.359 --> 00:22:25.680
The final point or question I had for you before we shift gears onto the next theme is just the costs of development and construction costs.
00:22:25.839 --> 00:22:37.839
And I'm interested to know I can talk for the residential segment of the market and just how the economic costs of delivery mean that it is extremely difficult to produce financially viable new products.
00:22:38.079 --> 00:22:41.359
What's happening in the retail segment of the market with costs?
00:22:41.599 --> 00:22:47.680
Are there areas where projects are not financially viable or what are what's happening in that space?
00:22:48.000 --> 00:22:56.559
And look, though, I guess the difference with the retail operators is they've got the flexibility to vary what they're prepared to pay or do or ask for.
00:22:56.799 --> 00:23:01.359
Again, their fundamental driver is getting their 20 stores open each per year.
00:23:01.599 --> 00:23:10.240
So they've had to review what they're doing, what they're paying, uh just to get their stores open or their business isn't going to grow.
00:23:10.400 --> 00:23:13.279
So now everyone's going to talk about construction costs.
00:23:13.359 --> 00:23:22.000
And, you know, 10 years ago it was$2,400 a square meter to construct a neighborhood on-grade shopping center.
00:23:22.160 --> 00:23:26.720
And in today's dollars, it's about$4,600 a square metre.
00:23:26.799 --> 00:23:30.880
So in 10 years it's doubled with consistent to other sectors along the way.
00:23:31.200 --> 00:23:34.799
Along the way, though, the rents have doubled as well.
00:23:34.960 --> 00:23:41.200
So your million dollar rent to 10 years ago is now a probably a$2 million rent.
00:23:41.359 --> 00:23:43.759
And we'll get into lease structures shortly.
00:23:44.400 --> 00:23:49.599
But again, I guess because the supermarkets are have this desire to open up stores, they're being flexible.
00:23:49.759 --> 00:23:55.440
You might have done an agreement with the major two or three years ago at a rent number.
00:23:55.599 --> 00:24:01.440
You can actually come back to the table, and it's a big part of what we do is coming back to the table and renegotiating terms.
00:24:01.599 --> 00:24:07.680
And, you know, maybe 10 years ago that would have been a flat no and you'd just be looking at each other across the table too.
00:24:07.839 --> 00:24:13.920
Now the majors are uh revising terms, provided it's reasonable and and you can justify what you're doing.
00:24:14.000 --> 00:24:17.359
Because again, their primary driver is to get the store open.
00:24:17.839 --> 00:24:18.160
Okay.
00:24:18.640 --> 00:24:20.880
Talk to me before we get onto supermarket leases.
00:24:20.960 --> 00:24:23.279
There's a theme I want to just unpack a little bit more.
00:24:23.359 --> 00:24:26.640
It's basically supermarket centres being revalued.
00:24:26.880 --> 00:24:29.279
Um, is there anything more you want to add to that?
00:24:29.359 --> 00:24:33.519
Or I suppose why are they being revalued now?
00:24:34.400 --> 00:24:40.079
I think it's the reality of the increased capital investment in the market from the players.
00:24:40.319 --> 00:24:47.279
The all sectors across from the regional shopping centres to sub-regional Tanaks have have seen an increased interest.
00:24:47.440 --> 00:24:58.480
And you know, you see the bigger centres and the big significant sums of money being invested into joint ventures there and 50-50 fund-through sort of deals that have kept those going.
00:24:58.720 --> 00:25:05.359
The sub-regional centres, and again, they have a little bit more of a discretionary spend to them, seem to be back in favour again.
00:25:05.759 --> 00:25:12.240
They certainly did drop off uh many years ago, and all the people getting back into them now were the ones getting out of them.
00:25:12.319 --> 00:25:18.079
So it's been a little bit of a cycle, which is probably a bit of a property cliche in terms of how the industry works.
00:25:18.240 --> 00:25:22.799
But certainly neighborhood shopping centres have been fundamentally um chased.
00:25:23.039 --> 00:25:33.680
There's also a little bit of a theory that if you've got a a billion dollar portfolio that was at six and a half percent, and you've just gone out and bought another billion dollars at five and a half percent.
00:25:33.920 --> 00:25:38.559
Well, by default, you're probably increasing the net net value of your portfolio along the way.
00:25:38.799 --> 00:25:50.640
So I guess it's that just supply of capital coming into the market, just driving cap rates down and the general acceptance that, you know, if if it's broadly anchored by a Woolworths or a Coles, you're gonna get your rent paid.
00:25:50.720 --> 00:25:52.319
There's very little risk associated with that.
00:25:52.640 --> 00:25:52.960
Yep.
00:25:53.279 --> 00:25:54.000
Very interesting.
00:25:54.240 --> 00:25:54.640
All right.
00:25:54.720 --> 00:25:58.559
Let's shift gears and jump into what I'm the most excited to talk about.
00:25:58.720 --> 00:26:00.720
It is the supermarket lease.
00:26:00.880 --> 00:26:03.200
Um, just a bit of background to our listeners.
00:26:03.359 --> 00:26:07.359
I know some of you may recall that I'm actually a lawyer by background.
00:26:07.519 --> 00:26:10.880
Um, during the GFC, I did a lot of work for Westfield shopping centers.
00:26:10.960 --> 00:26:15.519
I actually was involved in drafting, certainly not negotiating, but drafting the leases.
00:26:15.680 --> 00:26:23.279
I always found it absolutely fascinating how you could set up very clever terms in the actual lease deals.
00:26:23.440 --> 00:26:28.079
When we were preparing for this, I was not aware that these leases could be 40 to 50 years in length.
00:26:28.160 --> 00:26:30.799
That is really significant long periods of time.
00:26:31.200 --> 00:26:38.319
I'm interested to know because we were talking, and you actually said, Rich, um, rather than the cap rates, people need to really understand the supermarket leases.
00:26:38.480 --> 00:26:42.319
So let's start talking about that, you know, your experience in them.
00:26:42.720 --> 00:26:48.640
Why is your view that the supermarket leases so critical and actually probably more important than the cap rates?
00:26:48.960 --> 00:27:04.559
And this has been the fundamental art of supermarket leases along the way, and probably explained why 10, 15 years ago, a lot of people got out of the industry just because of the leases and the way they worked and exposure to outgoings increases and lack of growth.
00:27:04.880 --> 00:27:16.400
The supermarket lease, and you've got to recall the people you're dealing with have been doing this for many, many years, and they recycle many, many deals every day, if not every week.
00:27:16.559 --> 00:27:18.480
So they're very familiar with the terms.
00:27:18.559 --> 00:27:25.519
And I came back to that original statement about you know, 50% of the stores are actually delivered by smaller privates and one-offs.
00:27:25.599 --> 00:27:30.400
So a lot of people haven't got that experience in terms of the fundamental drivers.
00:27:30.559 --> 00:27:42.480
And I think in this rush of capital coming back into the market, people have bought shopping centres and leases and new projects and not really gone into the detail about how the structure actually works.
00:27:42.640 --> 00:27:53.119
And there's a two-pronged strategy going on here where supermarkets are very keen to maintain a sustainable occupancy cost level, sales to rent ratio.
00:27:53.279 --> 00:27:56.880
And they're probably okay to start off up towards the 5%.
00:27:57.279 --> 00:28:04.960
But ideally, they'd like to see that ratio come down to a 2.5% ratio or 3% ratio longer term.
00:28:05.279 --> 00:28:14.559
When I deal with a lot of clients, Rich, I do go through the conversation with them that you have actually signed up on a 40, 50 year lease deal here.
00:28:14.799 --> 00:28:20.480
Tenure, the initial term has changed from 10 years ago being 20 years, to now 10 years.
00:28:20.640 --> 00:28:27.039
And a lot of that's been driven by IFRIS accounting, which the liability of your lease sits on your books these days.
00:28:27.279 --> 00:28:38.720
Whereas previously it was 20 years, now it's 10 years, and also shows that I think the supermarkets are looking for a bit of flexibility longer term in terms of what's going to happen in 10 years' time.
00:28:38.960 --> 00:28:46.480
But following that, they're usually looking for six to eight, five-year option period, so another 30 years along the way.
00:28:46.720 --> 00:28:57.680
And often I'll sit with clients and run through a 20, 30 year cash flow projection and talk them through how the lease mechanics works between, you know, how does my rent get ratcheted and grow?
00:28:57.839 --> 00:29:02.559
Typically, supermarket leases never go backwards, which is why they're they're so favorable.
00:29:02.720 --> 00:29:05.279
Uh, typically they don't have market reviews.
00:29:05.359 --> 00:29:08.720
Uh, but they are their growth is driven by percentage rent.
00:29:08.799 --> 00:29:20.880
And this has been a fundamental challenge at the moment in terms of people not thinking they're going to get percentage rent, because the percentage rent threshold is usually driven by a multiple of the base rent.
00:29:21.200 --> 00:29:24.240
The higher your base rent goes, the higher your threshold goes.
00:29:24.400 --> 00:29:30.880
So a million dollar rent might have a$40 million threshold, a$2 million rent might have an$80 million threshold.
00:29:31.119 --> 00:29:31.200
Wow.
00:29:31.680 --> 00:29:38.640
So you might, you know, sometimes when I'm reviewing sites, I'll say, look, you're not really going to get any growth here for the next 20, 30 years.
00:29:38.720 --> 00:29:42.720
So are you accepting this is going to be the rent and where you go from there?
00:29:42.960 --> 00:29:48.880
Also, carrying the lease and the structures is the outgoings and increases in outgoings, uh, statutory.
00:29:49.039 --> 00:29:53.440
Obviously, the coals and will always pay land tax because they're they're that level.
00:29:53.920 --> 00:29:57.759
But who picks up the increases in the outgoings, who's exposed to that?
00:29:57.920 --> 00:30:05.440
Typically, supermarkets drive for semi-gross structures where they don't really want to get too caught up in increases.
00:30:05.519 --> 00:30:21.359
So there's a balance between you as a the landlord wanting to see growth in your property and a balance with the tenant wanting a sustainable long-term rental structure, because you don't want the flip side where the rent gets so high relative to sales, they're going to walk out the door.
00:30:21.599 --> 00:30:23.440
So it's a balancing act along the way.
00:30:23.759 --> 00:30:24.480
My goodness.
00:30:24.640 --> 00:30:27.039
Definitely the devil's there in the detail.
00:30:27.200 --> 00:30:29.440
Um, let's talk more about the lease risks.
00:30:29.599 --> 00:30:33.119
Um, I've got a note here to talk to you about maintenance and things like that.
00:30:33.200 --> 00:30:34.160
So let's start there.
00:30:34.319 --> 00:30:41.440
What are some of the least risks that in your travels uh you'd like some of our listeners to be aware of?
00:30:41.920 --> 00:30:48.480
I think certainly with the leases, you need to read every word to be frank about the whole thing.
00:30:48.640 --> 00:30:53.440
Um, I talked about the complexities of the supermarket and the less or works that go into the build.
00:30:53.599 --> 00:30:59.519
So, you know, lessors will typically own a fair bit of plant and equipment in a supermarket lease.
00:30:59.680 --> 00:31:04.880
And an example might be a backup generator for the supermarket that if power goes down.
00:31:04.960 --> 00:31:09.920
It could be a heating, air conditioning systems and the like.
00:31:10.240 --> 00:31:16.160
The lease does come with a very detailed lessee-less or obligation schedule.
00:31:16.240 --> 00:31:19.440
And a lot of this is just designed to outline who does what.
00:31:19.599 --> 00:31:24.559
But key words could be things like at the end of 10 years, you must replace something.
00:31:24.960 --> 00:31:25.759
Oh, yes, the must.
00:31:26.160 --> 00:31:30.799
Yeah, as opposed to within the 10 years, if it's beyond its usable life, we'll we'll work it out.
00:31:30.960 --> 00:31:34.079
So I tend to go through and read those words.
00:31:34.160 --> 00:31:46.079
And you do see trends come up uh often where you the supermarkets have had a bad experience on a particular element in their centres, and they're trying to push that back onto landlords.
00:31:46.240 --> 00:31:54.559
So really it's just about going through the wording, um, seeing where the obligations lie, and at least making sure the client understands exactly what they're walking into.
00:31:54.880 --> 00:32:05.440
Can I ask, um, in terms of actually, I'm assuming Witz and Coles have their standard leases, do they negotiate much or is it basically take it or leave it kind of thing?
00:32:05.759 --> 00:32:06.000
No.
00:32:06.160 --> 00:32:10.240
And again, it comes back to that fact that they need to open up stores.
00:32:10.400 --> 00:32:14.480
So by and large, they're reasonable to a point, I'd say, Rich.
00:32:14.640 --> 00:32:14.960
Yep.
00:32:15.119 --> 00:32:17.920
Um they want to get stores open, they want them to be practical.
00:32:18.079 --> 00:32:25.200
There is this challenge at the moment with fixed increases and every year annual increases and things like that going on.
00:32:25.359 --> 00:32:34.720
Um, it is often a challenge with your original heads of agreement that's a four-page document that then has these leases and AFL documents attached to them.
00:32:34.880 --> 00:32:44.480
It's really important to make sure that there's a clause in there that says to be negotiated and not on these terms is the one to go for.
00:32:44.720 --> 00:32:48.720
Um, yeah, again, a lease negotiation can can go for a couple of months.
00:32:48.799 --> 00:32:51.519
It wouldn't be unusual to be toing and froing.
00:32:51.599 --> 00:32:56.400
And every landlord um has a different objective or an issue on a particular thing.
00:32:56.480 --> 00:33:04.640
And and I learn on every lease myself, even after all this time, that I often think gee woers or Coles won't give that clause up.
00:33:04.720 --> 00:33:10.079
And then, you know, I've got a stubborn landlord who refuses to pay for something, and he'll argue for that.
00:33:10.240 --> 00:33:18.799
Typically, the the tenant will look for something else in exchange, but it's certainly that flexibility to get a deal done is their priority.
00:33:18.880 --> 00:33:21.200
And you know, generally they they're quite fair to deal with.
00:33:21.440 --> 00:33:24.079
They do have their their barriers they're prepared to go to.
00:33:24.400 --> 00:33:24.960
Yes.
00:33:25.599 --> 00:33:32.559
Um, I was interested to talk to you in a little bit more detail about just opportunities for mixed use developments.
00:33:32.799 --> 00:33:38.000
I've seen, and again, my I live and breathe in the the retail, uh, sorry, the residential segment of the market.
00:33:38.240 --> 00:33:42.960
I often see retail coming into these larger projects.
00:33:43.200 --> 00:33:46.880
Sometimes even you have, you know, Coles or WooWars anchoring a building.
00:33:46.960 --> 00:33:50.160
There's examples of BTR, for example, where they've got like a coals store.
00:33:50.319 --> 00:33:53.200
Um, what is your what are you seeing on the ground there?
00:33:53.359 --> 00:33:55.119
What are your thoughts in of that space?
00:33:55.519 --> 00:34:03.519
This was probably one of the more exciting developments towards the end of my time with WooWars and Coles, and that was the mixed-use development projects.
00:34:03.599 --> 00:34:10.719
And and having been caught up in a few of themselves, and I I talked about the lengths that they will go to to get stores open.
00:34:10.880 --> 00:34:38.880
And um, you know, I've got examples where we've acquired sites, obtain planning permits for mixed-use proposals with retail on the ground level, 300 apartments above, and then sold them off to developers that would develop them, to more recently joint venture style structures to try and get around the cost of capital and are they viable or not, to entering into JV deals with developers and profit share profit split.
00:34:39.119 --> 00:35:01.920
The biggest part or learning I've come out of those experiences has been the uh separating the conflict between residential and retail and the amount of time I've spent at VCAT resolving residential complaints and to now having developed a specific mixed-use brief to deal with the separation between the plant and equipment.
00:35:02.079 --> 00:35:20.079
And if you could think of a supermarket with 15 air conditioning systems in a plant room and condenser decks and fans that whiz around 24 hours a day, to back in the day, you used to draw a line and say those apartments are above the supermarket.
00:35:20.159 --> 00:35:34.400
Um it's nothing to do with me, to going back and sitting in a VCAT hearing and seeing a plan where a bedroom has been drawn on the wall next to your plant room with a bed and a pillow right beside the then.
00:35:34.480 --> 00:35:37.440
Perhaps in hindsight, we should have looked at those sort of things.
00:35:37.599 --> 00:35:47.679
It it probably wouldn't surprise you, Rich, to hear that um a lot of these developments, the developers or wooers or coals have had to come in and buy those apartments back because you really can't fix the problems.
00:35:47.840 --> 00:35:48.320
All right.
00:35:48.480 --> 00:35:57.599
Um there's a very detailed brief and kit that comes with stuff, but often those works and elements aren't carried out as part of the base build.
00:35:57.679 --> 00:36:04.639
And I'm referring to isolation slabs underneath plinths for a plant and equipment to stop vibration.
00:36:04.800 --> 00:36:07.599
The main issue is actually vibration when it comes to noise.
00:36:07.679 --> 00:36:11.280
It's not so much the noise, it's the vibration traveling through the structure.
00:36:11.360 --> 00:36:18.480
So if you can think of a 20-level building, that vibration will travel straight up through the concrete as if it's in the next room to you.
00:36:18.880 --> 00:36:24.880
So you know, a big part of my job is um I spend with people with mixed-use developments is to get in front.
00:36:24.960 --> 00:36:28.880
And it's not just the building do's and don'ts list and what you must do.
00:36:28.960 --> 00:36:39.840
It's also then flowing on to a an operational management plan to work with the supermarket guys in terms of can we put some signage up in your back of house areas so staff aren't noisy?
00:36:39.920 --> 00:36:46.159
Can we use rubber-mounted pallet jacks that don't clunk on concrete curbs?
00:36:46.320 --> 00:36:48.639
Can we can we work together on this?
00:36:48.800 --> 00:36:55.840
Because the reality is the problem always comes back to the supermarket tenant because they're traditionally making the noise.
00:36:56.079 --> 00:37:01.920
And even though the developer may not have done all the noise tenuation works, it still becomes the supermarket problem.
00:37:02.079 --> 00:37:11.920
So you're better off to try and deal with it up front, deal with your separation, deal with your planning and site layout up front, and that's going to save you a lot of money in the long term.
00:37:12.400 --> 00:37:15.440
It sounds like you've definitely got experience in that sector.
00:37:15.519 --> 00:37:21.519
So I certainly encourage our listeners to reach out to you if they want to get, as you've said, ahead ahead of those issues.
00:37:21.679 --> 00:37:27.039
Um, one of my final questions for you that I wanted to talk about, I know you've done a lot of work on town centers.
00:37:27.199 --> 00:37:35.599
I'm keen to, and we'll probably be teaming up and actually giving advice to various clients on the development of town centres, the timing, the layout, and things like that.
00:37:35.760 --> 00:37:48.480
Um, what are some of the themes or trends or observations that you've seen in your travels, whether it's from a supermarket perspective or just generally in terms of the development of those town centers?
00:37:48.800 --> 00:38:05.199
I think along the way, I've really gained a lot of experience from my time when I was in local government to working with councils because often an urban design framework or layout will come from a council or an urban design person who's not necessarily a commercial person.
00:38:05.360 --> 00:38:22.239
So often the time you will lose up front is negotiating a good outcome on a plan and not just having a main street theme center because someone thinks it's a great idea, but actually trying to come up with a solution that works and this is a real, a real answer.
00:38:22.320 --> 00:38:28.880
And I think there's a compromise there between delivering an outcome that the community will embrace and benefit from.
00:38:29.039 --> 00:38:34.719
And if you're a long-term retail person, you'll want the community to be on board with your design.
00:38:34.960 --> 00:38:42.719
At the moment, a big catch with um town centres and particularly outdoor town centres is very driven by your location.
00:38:42.880 --> 00:38:47.519
I've had a lot better experience in Queensland, better weather, better climates.
00:38:47.679 --> 00:38:52.239
Uh, Sydney, outdoor dining precincts, they tend to work a lot better up there.
00:38:52.400 --> 00:38:58.239
Victoria, unfortunately, Rich, we have the weather problem, and weather protection doesn't seem to go along with it.
00:38:58.480 --> 00:39:22.559
Town centres have probably had a little bit of a hard run with the four quadrant system, and a lot of those haven't really worked where you have two supermarkets and two DDSs separated by roads and not no connectivity to each other, um, typically car parking underneath, and and you tend to have a strong quadrant and maybe a half that isn't just working at the end.
00:39:22.800 --> 00:39:23.360
Very interesting.
00:39:23.440 --> 00:39:23.599
Okay.
00:39:24.000 --> 00:39:36.000
I think the town centre model is lending itself to that mixed-use entertainment, um, multifaceted approach of trying to make these retail centres serve more than one purpose.
00:39:36.159 --> 00:39:49.440
So rather than just serving a customer experience looking to go shopping, it's a customer that can come there and do a whole range of activities from entertainment, lifestyle, leisure, and and serve as a multi-purpose um project.
00:39:49.679 --> 00:39:58.320
The most valuable sites, and it's a long-term play, seem to be and driven by both the major Woolworths and Coles, is they like to be around a railway station.
00:39:58.480 --> 00:40:03.119
Because I think longer term they do see the traffic and car parking being an issue.
00:40:03.199 --> 00:40:10.079
And if you can be located around a train center and benefit from those as well, it's a win-win for both parties.
00:40:10.400 --> 00:40:11.519
Very interesting.
00:40:11.760 --> 00:40:12.079
Right.
00:40:12.159 --> 00:40:26.960
The final question from me is the retail landscape and the shopping centre landscape and supermarket landscape, what's the opportunity or to some of the most important opportunities and trends that you see over the next already here, but over the next 12 months?
00:40:27.280 --> 00:40:40.400
Yeah, again, I think Rich, because there's limited customer loyalty between the stores and you know, it's someone once said to me that there's a lot of people in the community that don't actually talk to anyone on a daily basis.
00:40:40.559 --> 00:40:45.760
They their only interaction with someone can be when they actually go shopping at the supermarket.
00:40:45.920 --> 00:40:53.599
And you'll notice when you go to a Coles or a Woolworths that the um team members on the front counter always say, Hi, how's your day going?
00:40:53.760 --> 00:41:06.079
And that's a really important element to me that people stay connected and that this essential, you know, I talk about essential service, and that was a little bit left over COVID when you know anyone that worked in supermarkets was a an essential employee.
00:41:06.320 --> 00:41:09.519
So you you were a bit you could move around quite freely.
00:41:09.679 --> 00:41:19.199
But I think it's as long as they're still staying connected with the community and providing that service because there's a lot of a push towards lower cost, yes, self-scanning.
00:41:19.760 --> 00:41:26.159
Um, you know, to me, a supermarket hasn't really changed much in 20 or 30 years in terms of design layout.
00:41:26.320 --> 00:41:43.119
You walk through, there's a fresh food area, there's a bakery, there's deli meat prep around to the right, you walk around through past the dairy section, you walk past a range of dry condoler groceries and freezer on the way out and a BWS or a licker land on the way out to finish your cycle.
00:41:43.679 --> 00:41:48.559
To me, it would be great to see a little bit more innovation in terms in terms of what they're offering.
00:41:48.800 --> 00:41:53.519
Um there's certainly a big focus on cost from both both players at the moment.
00:41:53.679 --> 00:41:57.360
Margin is being pushed and lots of other drivers impacting that.
00:41:57.519 --> 00:42:00.079
Again, these are public companies that need to make a profit.
00:42:00.159 --> 00:42:04.719
So, you know, while we say they're a community asset, they they still need to make a profit.
00:42:05.039 --> 00:42:07.840
I I would probably like to see a little bit more innovation from them.
00:42:08.000 --> 00:42:21.039
Um, you know, some of the slower take-up things have been, you know, uh car charging stations in car parks and, you know, the catch between a two-hour fast charge or 24-hour slow charge.
00:42:21.199 --> 00:42:25.679
And, you know, could you go and do a hundred dollar shop and get a free fast charge?
00:42:26.079 --> 00:42:28.559
Things like that could be done a whole lot better.
00:42:28.800 --> 00:42:48.559
Um, unfortunately, I think a lot of the supermarkets are going towards this lower cost option and almost to the point where you could put all your groceries in a shopping trolley and just push it through, it's scanned, and you tap a card and leave, um, as opposed to that customer-centric, customer-first style approach that has been there in the past.
00:42:49.199 --> 00:42:50.000
That's fascinating.
00:42:50.079 --> 00:42:53.760
You could probably do an entire episode on that topic in itself.
00:42:53.840 --> 00:42:56.239
Um, I know we're running a bit short of time today.
00:42:56.480 --> 00:43:01.360
Just to close out, did you have any final thoughts that you wanted to leave our listeners with?
00:43:01.519 --> 00:43:15.760
Um, no, look, I just think the retail market's been an exciting time in the market, and you know, everyone talks about construction costs going up, and certainly the increase or improvement in cap rates and supermarket rents has made them more viable to deliver.
00:43:15.920 --> 00:43:20.239
Um, supermarkets are uh and shopping centres are a living, breathing asset.
00:43:20.320 --> 00:43:22.960
They're not a buy, set, and forget style asset.
00:43:23.119 --> 00:43:28.000
So the more successful centres have been the ones where the owners spend a lot of time in them.
00:43:28.079 --> 00:43:35.119
And you think about some of the traditional families like the Gandels and the Alters and the Lowy's, they were all based in their big shopping centres.
00:43:35.199 --> 00:43:37.440
They all ate in the food courts and very interesting.
00:43:37.519 --> 00:43:37.679
Okay.
00:43:38.000 --> 00:43:39.440
Very familiar with all the tenants.
00:43:39.599 --> 00:43:43.519
And I walk around, there's a lot of you know, private landlords that we look after.
00:43:43.679 --> 00:43:47.679
And when I walk around their shopping centres with them, they all stop and talk to the tenants.
00:43:47.760 --> 00:43:53.360
And I'm always impressed about you know how connected they are with their tenants and interested in their businesses.
00:43:53.519 --> 00:43:59.760
So again, you buy a shopping centre, I think you buy a living, breathing asset and something you can't just really just bank.
00:44:00.159 --> 00:44:01.679
as an investment vehicle.
00:44:02.079 --> 00:44:03.280
It's a very interesting way.
00:44:04.000 --> 00:44:09.760
I'd not appreciated the people elements in the retail, the retail opportunity.
00:44:09.920 --> 00:44:10.159
All right.
00:44:10.320 --> 00:44:13.679
Well Don, look, thank you very much for coming along the show and sharing your ideas.
00:44:13.840 --> 00:44:18.320
Certainly I'll be um pointing people that reach out and I encourage everyone to do reach out.
00:44:18.400 --> 00:44:43.039
We'll be doing also just an insight summary a lot of what was discussed today because I do feel there's there's a wealth of information that people need to be aware of with their investments and their development decisions, whether it's just the pure play retail or if it's also a mixed use type of development or even for government with the development of their various town centers and that alignment with transport that Don is um so so well highlighted.
00:44:43.119 --> 00:44:49.199
So Don, thank you very much again for coming on the show and I hope you have a really good rest of the day.
00:44:50.320 --> 00:44:53.119
Hi everyone I hope that you enjoyed the session with Don today.
00:44:53.280 --> 00:45:00.639
I certainly found it fascinating all things retail, all things supermarkets and all things shopping centers.
00:45:01.039 --> 00:45:08.079
The three findings that I think that I would like everyone to just go away and reflect upon a little bit more are as follows.
00:45:08.400 --> 00:45:12.880
The first one is Don made a comment about shopping centres being living and breathing assets.
00:45:13.199 --> 00:45:21.119
I think that's a very important consideration and certainly not really one I mean my former life as a leasing lawyer that I'd really considered.
00:45:21.280 --> 00:45:30.960
But basically the fact that it's living and breathing just suggests to me that you can make commercial decisions as the actual asset and the tenancies evolve.
00:45:31.199 --> 00:45:39.920
They evolve and they mature and I think that's that's a very clever way to look at it rather than quite simply as a return on investment, which is quite clearly not the case.
00:45:40.719 --> 00:45:46.400
The second finding I think um also which is quite relevant is really the value being in the lease.
00:45:46.800 --> 00:45:56.320
I I hope that Don really convinced you just while while and how we articulate it today just the significant value that lies in those terms and conditions of the lease.
00:45:56.719 --> 00:46:11.440
And certainly I'd be um either reaching out to Don or g getting a retail and commercial leasing lawyer involved just to help you really make sure that you're both not just protected but also can maximize the upside just in terms of the value of the lease.
00:46:13.360 --> 00:46:35.840
Finally the the point that also became very clear to me is that whilst there is the resurgence of the retail center and shopping center investment, it's less so actually about retail and much more so about um capital chasing defensive income and then matching that up with population growth, supermarket dominance and then the long-term lease structures.
00:46:36.000 --> 00:46:43.199
And I think that that's really important to just keep in mind in your investment and your development decisions for this particular asset class.
00:46:43.599 --> 00:46:45.440
That's all I wanted to say today.
00:46:45.519 --> 00:46:47.840
I hope that um you have a good rest of the week.
00:46:48.000 --> 00:46:49.039
Thank you very much.
00:46:51.760 --> 00:46:54.000
Thank you very much for listening to this podcast.
00:46:54.239 --> 00:47:01.679
If you enjoyed the episode please make sure to subscribe to our podcast so you never miss an episode as we've got more exciting content coming.
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00:47:03.440 --> 00:47:08.400
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00:47:28.480 --> 00:47:45.360
Thank you again for listening and stay tuned for our next episode dropping in two weeks' time plus bonus content also on the horizon Precisely Property is a podcast presented by Chatterket Kramer and is for educational purposes only.
00:47:45.920 --> 00:47:49.840
Nothing in this podcast should be taken as investment or financial advice.
00:47:50.079 --> 00:47:56.960
Please engage the services of an appropriate professional advisor to provide advice suitable to your personal circumstances.
00:00:00.320 --> 00:00:05.200
This episode was recorded on the land of the Wurundjeri people of the Kulin Nation.
00:00:05.360 --> 00:00:10.240
We pay our respects to their elders, past, present, and future.
00:00:13.519 --> 00:00:16.719
Hello and welcome to a bonus episode of Precisely Property.
00:00:16.800 --> 00:00:18.559
I'm your host, Richard Timlett.
00:00:18.640 --> 00:00:20.640
I'm excited to have you with us today.
00:00:21.600 --> 00:00:27.679
If you're a longtime listener, you'll know we are taking a short break and working on something exciting for season five.
00:00:27.760 --> 00:00:29.199
So stay tuned for that.
00:00:29.440 --> 00:00:32.159
If you're here for the first time, thank you for joining us.
00:00:32.320 --> 00:00:39.600
I encourage you to listen to our previous episodes where we discuss all things property with a focus on dynamic discussions with industry leaders.
00:00:40.719 --> 00:00:49.359
In this episode, we'll be talking about the changing retail property landscape, capital, supermarkets, and long-term value with Don Folds.
00:00:49.439 --> 00:00:52.159
So sit back, relax, and let's get started.
00:00:52.640 --> 00:01:03.439
Don Folds is a national director and retail advisor at Charter Care Kramer with more than 20 years of experience advising Australia's major retailers, investors, developers, and finance groups.
00:01:03.679 --> 00:01:12.400
He specializes in retail centres and mixed-use developments, bringing deep market insights and a proven track record in delivering award-winning projects.
00:01:12.640 --> 00:01:13.439
Welcome, Don.
00:01:13.760 --> 00:01:14.159
Thanks, Rich.
00:01:14.400 --> 00:01:15.040
Great to be here.
00:01:15.359 --> 00:01:24.640
Don, I'm so excited to have you on the show and also really happy and privileged that you're the first internal person from Charter Care Kramer to have on the show.
00:01:24.879 --> 00:01:34.480
I've got to know you over the last uh six months to a year, and I think you're an absolute wealth of knowledge in the retail space, the retail advisory space.
00:01:34.640 --> 00:01:43.439
I pick your brain quite frequently just to learn more about retail advisory and the topics that we're going to talk about today, I think are incredibly valuable.
00:01:43.840 --> 00:01:51.760
I do a lot of work in the residential space, but um a lot of the work also actually does cross over into the retail elements.
00:01:51.920 --> 00:02:07.200
And so talking about the trends and what's happening on the ground in the retail space and a couple of key themes which we'll unpack in a second, I think will be very valuable given that a lot of people right now are actually looking at where the opportunities are in the market.
00:02:07.359 --> 00:02:15.759
And so just to let our listeners know, that the three themes we're going to talk about today, um the first one is really why capital is pouring back into shopping centers.
00:02:16.000 --> 00:02:19.520
The next one is why supermarket-based centers are being revalued.
00:02:19.680 --> 00:02:28.240
And then the one certainly that's the most interest to me, and I and I would be interested to know what our listeners think is why supermarket leases are more important than cap rates.
00:02:28.479 --> 00:02:31.439
And I must admit, when I read that one, I went, oh, this has caught my interest.
00:02:31.759 --> 00:02:33.520
I need to talk to you a little bit more about it.
00:02:33.599 --> 00:02:40.719
And it's actually fascinating to learn more about the leasing structures and things like that and how value can be created and captured.
00:02:40.800 --> 00:02:43.360
So I can't wait to get into the session with you today.
00:02:43.520 --> 00:02:46.639
Um so I suppose let's let's kick things off, Don.
00:02:48.479 --> 00:02:52.800
Let's start at the top in terms of why capital is pouring back into shopping centers.
00:02:53.120 --> 00:02:56.960
Yeah, look, I've always really been a supermarket shopping center guy.
00:02:57.039 --> 00:03:02.000
Uh, and to me, it's always been a relatively safe industry or sector to be involved in.
00:03:02.159 --> 00:03:03.599
It does involve everyone.
00:03:03.759 --> 00:03:06.479
Everyone knows a shopping center, everyone goes there.
00:03:06.719 --> 00:03:11.199
Probably what we had 15 years ago was a few disruptors in the market.
00:03:11.360 --> 00:03:13.439
Uh, online was creeping in.
00:03:13.520 --> 00:03:17.039
Um, people weren't sure about discretionary spend, where that was going.
00:03:17.199 --> 00:03:23.280
And the whole retail shopping centre market over the last five years seems to have stabilised somewhat.
00:03:23.439 --> 00:03:26.719
People are a lot more comfortable with what's going on with shopping centres.
00:03:26.879 --> 00:03:32.879
And that's covering off the large regional, um, sub-regional, and neighborhood shopping centre markets.
00:03:33.039 --> 00:03:46.400
Um, I think a big driver, too, has been the shift from typically the private investors and owners that would own, uh, particularly neighborhood shopping centres, and the REITs and LPTs now uh turning the light switch back on.
00:03:46.560 --> 00:03:55.280
And again, 10, 15 years ago, many of these were the same REITs getting out of the industry, uh, typically because of lease structures and no lack of growth.
00:03:55.360 --> 00:03:57.439
Uh, now getting back into the market.
00:03:57.919 --> 00:04:00.879
It's recognized as a very stable industry.
00:04:01.120 --> 00:04:10.479
Um, funds are coming in in terms of new funds being set up, and every month you hear about a new fund with a billion dollars to invest in shopping centres.
00:04:10.560 --> 00:04:13.919
And in a market that's kind of worth 250 billion.
00:04:14.000 --> 00:04:17.519
Some of these numbers have big impacts in terms of the investment that's coming in.
00:04:17.680 --> 00:04:34.879
So it's actually turned into a buying market rather than a selling market, with the majority of shopping centre owners, or particularly neighbourhood shopping centres, being approached weeklies, if not daily, for a sale and the demand from the REITs and the LPTs looking to enter this market.
00:04:35.279 --> 00:04:35.680
Wow.
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Is that at a national level or is it city or state specific?
00:04:41.439 --> 00:04:51.920
Well, I guess Rich, the good thing about retail is it tends to be a very national industry, and state by state, the cap rates tend to be fairly stable across the portfolios.
00:04:52.079 --> 00:05:05.839
Um, certainly the REITs and LPTs are targeting certain sectors, metropolitan locations, uh, supermarkets close to percentage rent and low vacancies, and probably cherry picking the lower, the lower risk style centres.
00:05:06.000 --> 00:05:12.399
But as a general rule, across Australia, the national cap rates tend to be fairly stable across all sectors.
00:05:12.800 --> 00:05:13.120
Okay.
00:05:14.000 --> 00:05:19.199
Um let's talk about shopping centres and and why, in your view, uh they're back.
00:05:20.480 --> 00:05:22.639
Let's let's talk about transaction activity.
00:05:22.800 --> 00:05:25.120
You started talking about obviously cap rate compression.
00:05:25.279 --> 00:05:29.600
I'm also interested to know you you talk about defensive um asset classes.
00:05:29.759 --> 00:05:35.360
So, what does it all mean for the people that are not as close to the segment of the market as you are?
00:05:35.680 --> 00:05:43.360
Yeah, thanks, which there's been a few buzzwords thrown around of late um everyday needs, uh, non-discretionary spend.
00:05:43.519 --> 00:05:56.079
To me, that tends to be more the uh supermarket with a neighborhood shopping centre with five to ten shops around it, uh lower discretionary spend and more everyday needs spend.
00:05:56.399 --> 00:06:06.000
Um, to me, really a key driver has been the fundamental aspect that if you look at a supermarket itself, the tenant actually has value in the property.
00:06:06.079 --> 00:06:07.600
So they're invested in the site.
00:06:07.680 --> 00:06:14.240
And you might have you know read Woolworth's profit last year at um 2.5 billion.
00:06:14.399 --> 00:06:22.879
So if you sort of look at terms of a thousand supermarket, that works out to be about 2.5 million EBIT per supermarket in value.
00:06:22.959 --> 00:06:30.000
So your tenant is actually invested in the property, as you as a landlord are also invested in the property.
00:06:30.160 --> 00:06:37.759
And in an ideal world, it comes together where both the tenant and the landlord are investing together to grow the centre, to grow the sales.
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That can often get challenging, and we can talk about that later.
00:06:41.680 --> 00:06:50.639
But it's that ideal combination of a tenant wanting to be there and investing in their property and a landlord owning a quality asset and investing in it as well.
00:06:51.040 --> 00:06:52.000
That's really interesting.
00:06:52.079 --> 00:06:57.839
I I'm keen to just pick up on that point now about just the value of the tenants to the shopping centre.
00:06:58.000 --> 00:07:03.199
And um obviously I'm not as close to this segment of the market as you are, but I did find that fascinating.
00:07:03.360 --> 00:07:21.360
Are you so if you have, for example, a neighborhood shopping centre and you've got like a Woolworths or a Coles and you've obviously got a bunch of other tenants in the building, are you talking about the value of the really is it the anchor tenant that creates that value, or all the tenants do they all create that value, or how does that all work?
00:07:21.759 --> 00:07:23.759
Certainly all very closely aligned.
00:07:23.920 --> 00:07:32.399
The the supermarket is always referred to as the anchored, or the or the major tenant is always referred to as the anchor, and the supporting specialty shop hanging off that.
00:07:32.480 --> 00:07:41.519
And key for a shopping centre these days is all about convenience and wanting the customer or the customer wanting to go there and servicing their needs.
00:07:41.680 --> 00:07:44.879
So the supermarket businesses have been around for a long time.
00:07:44.959 --> 00:07:54.000
They're very well rehearsed and honed in terms of design, getting the right layouts, outcomes, convenience, car parking and accessibility.
00:07:54.160 --> 00:07:57.199
All of these factors then feed onto the specialty shops.
00:07:57.279 --> 00:08:08.319
And typically I would say along my journey when I'm designing shopping centres, I'm not just looking at the supermarket, but I'm also looking at the flow for the specialty shops as well to make sure everyone works.
00:08:08.399 --> 00:08:13.680
You don't really want a dead end of a centre, you want everyone to work and everyone to move in the right direction.
00:08:14.000 --> 00:08:24.079
Are you, just so I understand, are you able to help with um the layout of these centres, the foot traffic, how the different uses interact with one another based on your previous experience?
00:08:24.399 --> 00:08:35.840
Yeah, look, I guess along the way, delivering so many shopping centres, and you know, every everyone's a little bit different in their way, but you typically we don't really start talking about the commercials or rents.
00:08:35.919 --> 00:08:38.960
It's really about the design, what can I get there?
00:08:39.200 --> 00:08:44.879
Can I get the utopia box and layout, car park, access and convenience?
00:08:45.039 --> 00:08:55.279
And then we tend to flow onto the commercials and that side of things because often if you can't make it work from a convenience perspective, it's always going to be a secondary style centre.
00:08:55.440 --> 00:09:05.039
So there's a lot of effort put into layouts, trolley bays, car parking locations, uh, shade sales, all sorts of elements that you probably don't really consider.
00:09:05.440 --> 00:09:11.679
And when you do a supermarket deal, they actually give you a very prescriptive brief in terms of what you have to do.
00:09:11.919 --> 00:09:23.440
Not to scare you off, it's about a hundred meg in size, so you can imagine what comes across and everything down to size of car parking bays, down to the material for the shade cloth in the car park.
00:09:23.519 --> 00:09:29.360
It's it's very detailed to try and make sure everything works in succinct to make the center flow and work well.
00:09:29.679 --> 00:09:35.759
And so this just to bring our listeners up to speed, you've obviously um well I suppose let's bring them up to speed.
00:09:35.919 --> 00:09:40.480
Where have you previously worked um and and your connections um and and what are they?
00:09:40.799 --> 00:09:44.240
Yeah, look, I certainly moved quickly into property.
00:09:44.320 --> 00:09:52.159
I started off in local government as a civil engineer, and I certainly moved through the catches of facilitating development and getting things done.
00:09:52.240 --> 00:09:56.879
And along the way, I sort of moved into retail, which was the 7 Eleven move.
00:09:56.960 --> 00:10:09.919
And that primarily came from meeting the 7-Eleven team looking to do a development at the municipality I was at and looking for a bit of planning facilitation advice, and then them saying, Well, you might might actually be a good guy to come and work with us.
00:10:10.080 --> 00:10:14.799
So I moved into their role to get a role out of convenience stores in the CBD.
00:10:14.960 --> 00:10:26.240
Um, from there I moved to Coles and I was there for sort of 10 years, and I moved on to Woolworths after that for about 15 years and predominantly been involved in the supermarket businesses the whole journey.
00:10:26.399 --> 00:10:30.799
So I know an awful lot about supermarkets, but I wouldn't say I know a lot about the other sectors.
00:10:31.120 --> 00:10:31.519
Gotcha.
00:10:31.679 --> 00:10:41.840
Well, look, I wanted to tease out both both your um your stints at Coles and Woolworths, because we're going to get into certain stats and obviously particularly the the value created by those leases.
00:10:41.919 --> 00:10:49.360
Um but before we do that, I why I wanted to why I asked you where you worked is you you basically spoke about the design of the centres and you get the brief.
00:10:49.519 --> 00:10:59.759
I'm assuming is that brief from the Woolworths or the Coles in terms of saying this is the car parking base we need, the shade cloth, because that's a significant amount of bargaining power from a tenant.
00:10:59.919 --> 00:11:07.519
Um is that just because of you know the the size of them in the sector, or um what can you share some thoughts on that?
00:11:07.840 --> 00:11:13.120
Yeah, it's probably comes around the volume of deals that the majors need to do each year.
00:11:13.279 --> 00:11:21.600
And both Coles and Woolworths would ideally like to open 20 supermarkets each a year, and we can get into volumes later on.
00:11:21.919 --> 00:11:29.279
But for them to do 20 deals a year, they've probably got to be doing 30 because 30% tend to fall off along the way.
00:11:29.519 --> 00:11:36.720
Um, they do have a very prescriptive formula, they do have a uh a playbook in terms of what they can give and can't give.
00:11:36.799 --> 00:11:50.799
So you will start off with a four-page heads of agreement, uh which will then flow to a an 80-page lease followed by a 60-page agreement for lease, followed by your 100 meg brief kit, what to fit out.
00:11:51.360 --> 00:12:01.679
What people probably don't really understand is when you deliver a shopping centre uh as a landlord, you do a fundamental amount of uh builder landlord lessee works along the way.
00:12:01.759 --> 00:12:18.559
So if you've took a supermarket and turned it upside down and shook it out, everything that's left is what the landlord provides from the kit, and that's everything down to tiles on the walls, um, shade sales in the car parks, backup generators, air conditioning plant and equipment.
00:12:18.639 --> 00:12:26.480
So it is a very labour-intensive intertwined combination between less C and less ore from the very start.
00:12:26.559 --> 00:12:41.600
And that's probably why it has to be so detailed, because a lot of the works overlapping when the tenant comes in to do their fit out, that a lot of those works have to occur before the handover occurs, like drainage in the slab and refrigeration cases and things like that.
00:12:41.759 --> 00:12:53.200
So they can be very uh complicated in terms of delivery, but you do tend to find that there's a select group or and you know, four or five builders in each state that specialise in the delivery of these centers.
00:12:53.360 --> 00:12:56.159
So you work hand in hand together along the way.
00:12:56.320 --> 00:13:02.480
And while all information is incredibly detailed and onerous, it does actually guide you through the process from start to finish.
00:13:02.879 --> 00:13:03.919
Very interesting.
00:13:04.080 --> 00:13:10.639
Um, I'm keen to talk a little bit about stats, and we'll keep pushing through a bunch of the topics and issues that I would like to talk to you about.
00:13:10.720 --> 00:13:17.120
But um, I know when I was preparing for this with you, you had figures on the number of stores that Woolworths and Coles had.
00:13:17.200 --> 00:13:19.919
You had the basically the market share.
00:13:20.000 --> 00:13:24.399
Um, you started talking about how many stores they are trying to or aim to open each year.
00:13:24.559 --> 00:13:29.279
Um, are you able to just educate our listeners on on what the size of the market is?
00:13:29.679 --> 00:13:43.279
I guess when we talk about the Australian market, it's predominantly Woolworths and Coles, and together their combined sales are around$90 billion, which means they represent around 65% of the total food market in Australia.
00:13:43.519 --> 00:13:50.559
Um at the moment, Woolworths has around 1,040 stores, and Coles has around 860 stores.
00:13:50.799 --> 00:14:00.159
And I come back to that need for them to grow and drive their store numbers each year, and they typically want to grow and deliver another 20 stores each per year.
00:14:00.320 --> 00:14:06.799
And every year I often thought I was going to run out of stores to find and what was going to do, but every year you keep going along.
00:14:07.039 --> 00:14:14.480
The fundamental driver for that is a supermarket chain will open up a new store and they might pick up brand new sales from day one.
00:14:14.559 --> 00:14:18.240
So they could pick up a$40 million sale from that investment.
00:14:18.480 --> 00:14:23.120
If they go and refurbish an existing$40 million store, they might pick up 10%.
00:14:23.440 --> 00:14:25.440
So they don't really pick up an extra$4 million.
00:14:25.840 --> 00:14:31.440
So the big bang for Buck is supermarkets opening brand new stores and increasing market share.
00:14:31.679 --> 00:14:37.120
Now they will do and move with the market what they need to do to get those stores open.
00:14:37.279 --> 00:14:42.559
And I recall times through the GFC where we turned into banks and we were lending money to developers.
00:14:43.840 --> 00:14:51.679
Um we we might get, you know, typically of a 20-store pool, 10 stores would be delivered by the private market.
00:14:52.159 --> 00:15:01.600
Five stores would probably be delivered by the shopping centre majors themselves, so their own in-house development teams, and five would be driven by the REITs and the LPTs.
00:15:01.759 --> 00:15:14.720
So this is where you come back to the soup market and supply chain that the majority of the new stores actually come from smaller privates and one-off deals, not so much the centres and the vicinities and those people of the world.
00:15:15.200 --> 00:15:20.320
But again, in terms of the flexibility to get the stores open, we we talked about funding developments.
00:15:20.480 --> 00:15:25.679
The in-house development teams might get busier and take on more projects if the market can't deliver.
00:15:25.919 --> 00:15:34.720
And in recent times, there's been a lot of joint ventures happening in the market where with mixed use you might pal up with a residential developer to do a development.
00:15:34.879 --> 00:15:42.879
But interesting, we're at a really peak time now with cap rates and demand, but there were times when it wasn't so rosy.
00:15:42.960 --> 00:15:57.120
And I go back to 2012 when Wooers had a had kept developing centres, and when they developed so many each year they compounded and they ended up with about 69 centres and had to set up their own fund and float that off into the market.
00:15:57.200 --> 00:15:59.519
That was the SCA region group at the time.
00:16:00.559 --> 00:16:06.000
And, you know, back in those days, there wasn't really a buyer to take on all of those stores.
00:16:06.080 --> 00:16:09.519
So to be a bit creative, the retailers went down that path.
00:16:09.759 --> 00:16:20.320
Around the same time in 2013, Coles paled up with ISPT and IFM and did a joint venture along the way for them to buy out stores at completion as well.
00:16:20.559 --> 00:16:31.600
And you might have just noticed in 2026, Woolworths um selling a group of stores to Forest Endeavour, 10 assets, and that just gets those off their books and they can go again for new stores from there.
00:16:31.919 --> 00:16:32.720
That's fascinating.
00:16:32.879 --> 00:16:34.320
I actually did see that headline.
00:16:34.480 --> 00:16:35.039
All right.
00:16:35.279 --> 00:16:37.440
Um, as you're talking, I did have a couple of notes.
00:16:37.519 --> 00:16:46.240
The the first one I wanted to talk about, and excuse my ignorance, I've seen that both Woolworths and Coles, they seem to have opened also almost smaller footprint stores.
00:16:46.399 --> 00:16:47.120
Um I don't know.
00:16:47.279 --> 00:16:48.799
I think you've mentioned it to me.
00:16:49.360 --> 00:16:52.879
I can't remember what they were called, but but you obviously know the names.
00:16:52.960 --> 00:16:53.679
Is that correct?
00:16:53.759 --> 00:16:57.279
It's basically like the the smaller footprints.
00:16:57.440 --> 00:17:00.480
Um, like the I can't remember what it's actually called.
00:17:00.639 --> 00:17:04.640
Is that am I seeing things or is that actually obviously part of their deliberate strategy?
00:17:05.039 --> 00:17:08.000
No, there are smaller stores creeping into the market.
00:17:08.160 --> 00:17:13.920
I would say the primary engine driver behind both Coles and WooWars is full-line supermarkets.
00:17:14.079 --> 00:17:17.039
They're typically 3,600 square meters.
00:17:17.119 --> 00:17:20.640
They carry about 20,000 line items in there.
00:17:21.119 --> 00:17:24.960
And, you know, they like to every store to be the same, layout to be the same.
00:17:25.119 --> 00:17:29.200
It's a delivery convenience, operational uh efficiency model.
00:17:29.599 --> 00:17:35.200
Um, you will see some smaller stores creeping in, and there's the Coles Local and Woolworths Metro.
00:17:35.599 --> 00:17:36.000
That's it, yes.
00:17:36.400 --> 00:17:37.039
Are the two.
00:17:37.200 --> 00:17:44.799
Um, you know, their success, they really do fill a gap in areas where you're not going to get a full-line supermarket.
00:17:45.039 --> 00:17:49.440
I wouldn't say they compete head to head with a full-line supermarket.
00:17:49.519 --> 00:17:55.519
So if you have a full-line Coles next to a Woolworths Metro, the full-line Coles will always win.
00:17:55.759 --> 00:18:00.240
There is a perception with the smaller stores that they're more expensive to shop in.
00:18:00.400 --> 00:18:01.680
They have a lesser range.
00:18:01.839 --> 00:18:06.640
And customers are very unforgiving in today's market.
00:18:06.720 --> 00:18:11.279
And if they cannot get their usual product range, they will go somewhere else.
00:18:11.440 --> 00:18:16.880
And Rich, there's really limited customer loyalty between customer wooers, maybe about 7%.
00:18:17.359 --> 00:18:25.200
If you had two stores side by side and you said you were a Coles guy or a WooWars guy, you're really going to go to the most convenient center you can.
00:18:25.839 --> 00:18:30.880
They have tried to go into smaller convenience style stores, and they just didn't work.
00:18:30.960 --> 00:18:33.599
And that that seems to be a trend that comes and goes now and then.
00:18:33.920 --> 00:18:35.039
That's fascinating.
00:18:35.279 --> 00:18:38.559
Um, the other point I wanted to talk to you about just was online retail.
00:18:38.640 --> 00:18:42.640
And I saw in some of your stats that there's obviously been the take-up of online.
00:18:43.119 --> 00:18:46.319
Um, but I was also interested in the concept of click and collect.
00:18:46.480 --> 00:18:58.640
And I remember discussing with you, you're talking about like the you've gone back to saying that the store, you like you've observed that the stores they need to have the correct layout and have because it just it's an efficient process.
00:18:58.960 --> 00:19:05.680
How has click and collect and online retail impacted the layout of the stores and I suppose just the sector more broadly?
00:19:06.160 --> 00:19:10.559
This was often the page in my presentations that has changed the most over the years.
00:19:10.640 --> 00:19:16.480
And you know, it's interesting to watch the transition grow and the percentage of supermarket sales to online.
00:19:17.039 --> 00:19:23.279
And I've often compared these percentages to overline, overseas Tesca as the those sort of stores.
00:19:23.359 --> 00:19:30.319
Um in the Australian market, we sort of kicked off around about 2016 with a very humble 4% of sales.
00:19:30.400 --> 00:19:45.119
So you can imagine a you know typical supermarket doing$40 million in sales a year, so 4% of that being online into today's dollars that it seems to be leveling out somewhere around about the 14% of sales.
00:19:45.359 --> 00:19:50.480
And when I talk about online sales, there's two there's two different elements to that.
00:19:50.640 --> 00:19:58.400
One is where a customer comes and picks it up from the store, and Coles would call that click and collect, and Warwick would call that direct-to-boot.
00:19:58.559 --> 00:20:05.119
And then there's the complementing home delivery sales, where you get the product delivered to your house.
00:20:05.359 --> 00:20:21.359
What the big shift has really been was, you know, back in the early days, it was a two-day delivery time frame and a six-hour window when they might turn up to now being a same-day delivery service within a two-hour time period.
00:20:21.519 --> 00:20:24.559
So the actual convenience factor has greatly improved.
00:20:24.720 --> 00:20:29.920
Um, people still don't like being locked into having to be at home to get the groceries.
00:20:30.079 --> 00:20:42.240
Um, people seem to like the going to the store and picking up and controlling technology's growing with this, where you can click on an app and say you're coming and the stock will be ready when you get there and it's put straight in your boot.
00:20:42.400 --> 00:20:53.119
Um, the businesses are sort of saying that you know the online picking up from the store seems to be the more dominant sector at the moment, more than the home delivery sector.
00:20:54.240 --> 00:20:57.920
Quickly interrupting this episode to tell you about Charter Kit Kramer.
00:20:58.319 --> 00:21:05.839
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00:22:14.079 --> 00:22:15.920
Now let's get back into the episode.
00:22:17.359 --> 00:22:25.680
The final point or question I had for you before we shift gears onto the next theme is just the costs of development and construction costs.
00:22:25.839 --> 00:22:37.839
And I'm interested to know I can talk for the residential segment of the market and just how the economic costs of delivery mean that it is extremely difficult to produce financially viable new products.
00:22:38.079 --> 00:22:41.359
What's happening in the retail segment of the market with costs?
00:22:41.599 --> 00:22:47.680
Are there areas where projects are not financially viable or what are what's happening in that space?
00:22:48.000 --> 00:22:56.559
And look, though, I guess the difference with the retail operators is they've got the flexibility to vary what they're prepared to pay or do or ask for.
00:22:56.799 --> 00:23:01.359
Again, their fundamental driver is getting their 20 stores open each per year.
00:23:01.599 --> 00:23:10.240
So they've had to review what they're doing, what they're paying, uh just to get their stores open or their business isn't going to grow.
00:23:10.400 --> 00:23:13.279
So now everyone's going to talk about construction costs.
00:23:13.359 --> 00:23:22.000
And, you know, 10 years ago it was$2,400 a square meter to construct a neighborhood on-grade shopping center.
00:23:22.160 --> 00:23:26.720
And in today's dollars, it's about$4,600 a square metre.
00:23:26.799 --> 00:23:30.880
So in 10 years it's doubled with consistent to other sectors along the way.
00:23:31.200 --> 00:23:34.799
Along the way, though, the rents have doubled as well.
00:23:34.960 --> 00:23:41.200
So your million dollar rent to 10 years ago is now a probably a$2 million rent.
00:23:41.359 --> 00:23:43.759
And we'll get into lease structures shortly.
00:23:44.400 --> 00:23:49.599
But again, I guess because the supermarkets are have this desire to open up stores, they're being flexible.
00:23:49.759 --> 00:23:55.440
You might have done an agreement with the major two or three years ago at a rent number.
00:23:55.599 --> 00:24:01.440
You can actually come back to the table, and it's a big part of what we do is coming back to the table and renegotiating terms.
00:24:01.599 --> 00:24:07.680
And, you know, maybe 10 years ago that would have been a flat no and you'd just be looking at each other across the table too.
00:24:07.839 --> 00:24:13.920
Now the majors are uh revising terms, provided it's reasonable and and you can justify what you're doing.
00:24:14.000 --> 00:24:17.359
Because again, their primary driver is to get the store open.
00:24:17.839 --> 00:24:18.160
Okay.
00:24:18.640 --> 00:24:20.880
Talk to me before we get onto supermarket leases.
00:24:20.960 --> 00:24:23.279
There's a theme I want to just unpack a little bit more.
00:24:23.359 --> 00:24:26.640
It's basically supermarket centres being revalued.
00:24:26.880 --> 00:24:29.279
Um, is there anything more you want to add to that?
00:24:29.359 --> 00:24:33.519
Or I suppose why are they being revalued now?
00:24:34.400 --> 00:24:40.079
I think it's the reality of the increased capital investment in the market from the players.
00:24:40.319 --> 00:24:47.279
The all sectors across from the regional shopping centres to sub-regional Tanaks have have seen an increased interest.
00:24:47.440 --> 00:24:58.480
And you know, you see the bigger centres and the big significant sums of money being invested into joint ventures there and 50-50 fund-through sort of deals that have kept those going.
00:24:58.720 --> 00:25:05.359
The sub-regional centres, and again, they have a little bit more of a discretionary spend to them, seem to be back in favour again.
00:25:05.759 --> 00:25:12.240
They certainly did drop off uh many years ago, and all the people getting back into them now were the ones getting out of them.
00:25:12.319 --> 00:25:18.079
So it's been a little bit of a cycle, which is probably a bit of a property cliche in terms of how the industry works.
00:25:18.240 --> 00:25:22.799
But certainly neighborhood shopping centres have been fundamentally um chased.
00:25:23.039 --> 00:25:33.680
There's also a little bit of a theory that if you've got a a billion dollar portfolio that was at six and a half percent, and you've just gone out and bought another billion dollars at five and a half percent.
00:25:33.920 --> 00:25:38.559
Well, by default, you're probably increasing the net net value of your portfolio along the way.
00:25:38.799 --> 00:25:50.640
So I guess it's that just supply of capital coming into the market, just driving cap rates down and the general acceptance that, you know, if if it's broadly anchored by a Woolworths or a Coles, you're gonna get your rent paid.
00:25:50.720 --> 00:25:52.319
There's very little risk associated with that.
00:25:52.640 --> 00:25:52.960
Yep.
00:25:53.279 --> 00:25:54.000
Very interesting.
00:25:54.240 --> 00:25:54.640
All right.
00:25:54.720 --> 00:25:58.559
Let's shift gears and jump into what I'm the most excited to talk about.
00:25:58.720 --> 00:26:00.720
It is the supermarket lease.
00:26:00.880 --> 00:26:03.200
Um, just a bit of background to our listeners.
00:26:03.359 --> 00:26:07.359
I know some of you may recall that I'm actually a lawyer by background.
00:26:07.519 --> 00:26:10.880
Um, during the GFC, I did a lot of work for Westfield shopping centers.
00:26:10.960 --> 00:26:15.519
I actually was involved in drafting, certainly not negotiating, but drafting the leases.
00:26:15.680 --> 00:26:23.279
I always found it absolutely fascinating how you could set up very clever terms in the actual lease deals.
00:26:23.440 --> 00:26:28.079
When we were preparing for this, I was not aware that these leases could be 40 to 50 years in length.
00:26:28.160 --> 00:26:30.799
That is really significant long periods of time.
00:26:31.200 --> 00:26:38.319
I'm interested to know because we were talking, and you actually said, Rich, um, rather than the cap rates, people need to really understand the supermarket leases.
00:26:38.480 --> 00:26:42.319
So let's start talking about that, you know, your experience in them.
00:26:42.720 --> 00:26:48.640
Why is your view that the supermarket leases so critical and actually probably more important than the cap rates?
00:26:48.960 --> 00:27:04.559
And this has been the fundamental art of supermarket leases along the way, and probably explained why 10, 15 years ago, a lot of people got out of the industry just because of the leases and the way they worked and exposure to outgoings increases and lack of growth.
00:27:04.880 --> 00:27:16.400
The supermarket lease, and you've got to recall the people you're dealing with have been doing this for many, many years, and they recycle many, many deals every day, if not every week.
00:27:16.559 --> 00:27:18.480
So they're very familiar with the terms.
00:27:18.559 --> 00:27:25.519
And I came back to that original statement about you know, 50% of the stores are actually delivered by smaller privates and one-offs.
00:27:25.599 --> 00:27:30.400
So a lot of people haven't got that experience in terms of the fundamental drivers.
00:27:30.559 --> 00:27:42.480
And I think in this rush of capital coming back into the market, people have bought shopping centres and leases and new projects and not really gone into the detail about how the structure actually works.
00:27:42.640 --> 00:27:53.119
And there's a two-pronged strategy going on here where supermarkets are very keen to maintain a sustainable occupancy cost level, sales to rent ratio.
00:27:53.279 --> 00:27:56.880
And they're probably okay to start off up towards the 5%.
00:27:57.279 --> 00:28:04.960
But ideally, they'd like to see that ratio come down to a 2.5% ratio or 3% ratio longer term.
00:28:05.279 --> 00:28:14.559
When I deal with a lot of clients, Rich, I do go through the conversation with them that you have actually signed up on a 40, 50 year lease deal here.
00:28:14.799 --> 00:28:20.480
Tenure, the initial term has changed from 10 years ago being 20 years, to now 10 years.
00:28:20.640 --> 00:28:27.039
And a lot of that's been driven by IFRIS accounting, which the liability of your lease sits on your books these days.
00:28:27.279 --> 00:28:38.720
Whereas previously it was 20 years, now it's 10 years, and also shows that I think the supermarkets are looking for a bit of flexibility longer term in terms of what's going to happen in 10 years' time.
00:28:38.960 --> 00:28:46.480
But following that, they're usually looking for six to eight, five-year option period, so another 30 years along the way.
00:28:46.720 --> 00:28:57.680
And often I'll sit with clients and run through a 20, 30 year cash flow projection and talk them through how the lease mechanics works between, you know, how does my rent get ratcheted and grow?
00:28:57.839 --> 00:29:02.559
Typically, supermarket leases never go backwards, which is why they're they're so favorable.
00:29:02.720 --> 00:29:05.279
Uh, typically they don't have market reviews.
00:29:05.359 --> 00:29:08.720
Uh, but they are their growth is driven by percentage rent.
00:29:08.799 --> 00:29:20.880
And this has been a fundamental challenge at the moment in terms of people not thinking they're going to get percentage rent, because the percentage rent threshold is usually driven by a multiple of the base rent.
00:29:21.200 --> 00:29:24.240
The higher your base rent goes, the higher your threshold goes.
00:29:24.400 --> 00:29:30.880
So a million dollar rent might have a$40 million threshold, a$2 million rent might have an$80 million threshold.
00:29:31.119 --> 00:29:31.200
Wow.
00:29:31.680 --> 00:29:38.640
So you might, you know, sometimes when I'm reviewing sites, I'll say, look, you're not really going to get any growth here for the next 20, 30 years.
00:29:38.720 --> 00:29:42.720
So are you accepting this is going to be the rent and where you go from there?
00:29:42.960 --> 00:29:48.880
Also, carrying the lease and the structures is the outgoings and increases in outgoings, uh, statutory.
00:29:49.039 --> 00:29:53.440
Obviously, the coals and will always pay land tax because they're they're that level.
00:29:53.920 --> 00:29:57.759
But who picks up the increases in the outgoings, who's exposed to that?
00:29:57.920 --> 00:30:05.440
Typically, supermarkets drive for semi-gross structures where they don't really want to get too caught up in increases.
00:30:05.519 --> 00:30:21.359
So there's a balance between you as a the landlord wanting to see growth in your property and a balance with the tenant wanting a sustainable long-term rental structure, because you don't want the flip side where the rent gets so high relative to sales, they're going to walk out the door.
00:30:21.599 --> 00:30:23.440
So it's a balancing act along the way.
00:30:23.759 --> 00:30:24.480
My goodness.
00:30:24.640 --> 00:30:27.039
Definitely the devil's there in the detail.
00:30:27.200 --> 00:30:29.440
Um, let's talk more about the lease risks.
00:30:29.599 --> 00:30:33.119
Um, I've got a note here to talk to you about maintenance and things like that.
00:30:33.200 --> 00:30:34.160
So let's start there.
00:30:34.319 --> 00:30:41.440
What are some of the least risks that in your travels uh you'd like some of our listeners to be aware of?
00:30:41.920 --> 00:30:48.480
I think certainly with the leases, you need to read every word to be frank about the whole thing.
00:30:48.640 --> 00:30:53.440
Um, I talked about the complexities of the supermarket and the less or works that go into the build.
00:30:53.599 --> 00:30:59.519
So, you know, lessors will typically own a fair bit of plant and equipment in a supermarket lease.
00:30:59.680 --> 00:31:04.880
And an example might be a backup generator for the supermarket that if power goes down.
00:31:04.960 --> 00:31:09.920
It could be a heating, air conditioning systems and the like.
00:31:10.240 --> 00:31:16.160
The lease does come with a very detailed lessee-less or obligation schedule.
00:31:16.240 --> 00:31:19.440
And a lot of this is just designed to outline who does what.
00:31:19.599 --> 00:31:24.559
But key words could be things like at the end of 10 years, you must replace something.
00:31:24.960 --> 00:31:25.759
Oh, yes, the must.
00:31:26.160 --> 00:31:30.799
Yeah, as opposed to within the 10 years, if it's beyond its usable life, we'll we'll work it out.
00:31:30.960 --> 00:31:34.079
So I tend to go through and read those words.
00:31:34.160 --> 00:31:46.079
And you do see trends come up uh often where you the supermarkets have had a bad experience on a particular element in their centres, and they're trying to push that back onto landlords.
00:31:46.240 --> 00:31:54.559
So really it's just about going through the wording, um, seeing where the obligations lie, and at least making sure the client understands exactly what they're walking into.
00:31:54.880 --> 00:32:05.440
Can I ask, um, in terms of actually, I'm assuming Witz and Coles have their standard leases, do they negotiate much or is it basically take it or leave it kind of thing?
00:32:05.759 --> 00:32:06.000
No.
00:32:06.160 --> 00:32:10.240
And again, it comes back to that fact that they need to open up stores.
00:32:10.400 --> 00:32:14.480
So by and large, they're reasonable to a point, I'd say, Rich.
00:32:14.640 --> 00:32:14.960
Yep.
00:32:15.119 --> 00:32:17.920
Um they want to get stores open, they want them to be practical.
00:32:18.079 --> 00:32:25.200
There is this challenge at the moment with fixed increases and every year annual increases and things like that going on.
00:32:25.359 --> 00:32:34.720
Um, it is often a challenge with your original heads of agreement that's a four-page document that then has these leases and AFL documents attached to them.
00:32:34.880 --> 00:32:44.480
It's really important to make sure that there's a clause in there that says to be negotiated and not on these terms is the one to go for.
00:32:44.720 --> 00:32:48.720
Um, yeah, again, a lease negotiation can can go for a couple of months.
00:32:48.799 --> 00:32:51.519
It wouldn't be unusual to be toing and froing.
00:32:51.599 --> 00:32:56.400
And every landlord um has a different objective or an issue on a particular thing.
00:32:56.480 --> 00:33:04.640
And and I learn on every lease myself, even after all this time, that I often think gee woers or Coles won't give that clause up.
00:33:04.720 --> 00:33:10.079
And then, you know, I've got a stubborn landlord who refuses to pay for something, and he'll argue for that.
00:33:10.240 --> 00:33:18.799
Typically, the the tenant will look for something else in exchange, but it's certainly that flexibility to get a deal done is their priority.
00:33:18.880 --> 00:33:21.200
And you know, generally they they're quite fair to deal with.
00:33:21.440 --> 00:33:24.079
They do have their their barriers they're prepared to go to.
00:33:24.400 --> 00:33:24.960
Yes.
00:33:25.599 --> 00:33:32.559
Um, I was interested to talk to you in a little bit more detail about just opportunities for mixed use developments.
00:33:32.799 --> 00:33:38.000
I've seen, and again, my I live and breathe in the the retail, uh, sorry, the residential segment of the market.
00:33:38.240 --> 00:33:42.960
I often see retail coming into these larger projects.
00:33:43.200 --> 00:33:46.880
Sometimes even you have, you know, Coles or WooWars anchoring a building.
00:33:46.960 --> 00:33:50.160
There's examples of BTR, for example, where they've got like a coals store.
00:33:50.319 --> 00:33:53.200
Um, what is your what are you seeing on the ground there?
00:33:53.359 --> 00:33:55.119
What are your thoughts in of that space?
00:33:55.519 --> 00:34:03.519
This was probably one of the more exciting developments towards the end of my time with WooWars and Coles, and that was the mixed-use development projects.
00:34:03.599 --> 00:34:10.719
And and having been caught up in a few of themselves, and I I talked about the lengths that they will go to to get stores open.
00:34:10.880 --> 00:34:38.880
And um, you know, I've got examples where we've acquired sites, obtain planning permits for mixed-use proposals with retail on the ground level, 300 apartments above, and then sold them off to developers that would develop them, to more recently joint venture style structures to try and get around the cost of capital and are they viable or not, to entering into JV deals with developers and profit share profit split.
00:34:39.119 --> 00:35:01.920
The biggest part or learning I've come out of those experiences has been the uh separating the conflict between residential and retail and the amount of time I've spent at VCAT resolving residential complaints and to now having developed a specific mixed-use brief to deal with the separation between the plant and equipment.
00:35:02.079 --> 00:35:20.079
And if you could think of a supermarket with 15 air conditioning systems in a plant room and condenser decks and fans that whiz around 24 hours a day, to back in the day, you used to draw a line and say those apartments are above the supermarket.
00:35:20.159 --> 00:35:34.400
Um it's nothing to do with me, to going back and sitting in a VCAT hearing and seeing a plan where a bedroom has been drawn on the wall next to your plant room with a bed and a pillow right beside the then.
00:35:34.480 --> 00:35:37.440
Perhaps in hindsight, we should have looked at those sort of things.
00:35:37.599 --> 00:35:47.679
It it probably wouldn't surprise you, Rich, to hear that um a lot of these developments, the developers or wooers or coals have had to come in and buy those apartments back because you really can't fix the problems.
00:35:47.840 --> 00:35:48.320
All right.
00:35:48.480 --> 00:35:57.599
Um there's a very detailed brief and kit that comes with stuff, but often those works and elements aren't carried out as part of the base build.
00:35:57.679 --> 00:36:04.639
And I'm referring to isolation slabs underneath plinths for a plant and equipment to stop vibration.
00:36:04.800 --> 00:36:07.599
The main issue is actually vibration when it comes to noise.
00:36:07.679 --> 00:36:11.280
It's not so much the noise, it's the vibration traveling through the structure.
00:36:11.360 --> 00:36:18.480
So if you can think of a 20-level building, that vibration will travel straight up through the concrete as if it's in the next room to you.
00:36:18.880 --> 00:36:24.880
So you know, a big part of my job is um I spend with people with mixed-use developments is to get in front.
00:36:24.960 --> 00:36:28.880
And it's not just the building do's and don'ts list and what you must do.
00:36:28.960 --> 00:36:39.840
It's also then flowing on to a an operational management plan to work with the supermarket guys in terms of can we put some signage up in your back of house areas so staff aren't noisy?
00:36:39.920 --> 00:36:46.159
Can we use rubber-mounted pallet jacks that don't clunk on concrete curbs?
00:36:46.320 --> 00:36:48.639
Can we can we work together on this?
00:36:48.800 --> 00:36:55.840
Because the reality is the problem always comes back to the supermarket tenant because they're traditionally making the noise.
00:36:56.079 --> 00:37:01.920
And even though the developer may not have done all the noise tenuation works, it still becomes the supermarket problem.
00:37:02.079 --> 00:37:11.920
So you're better off to try and deal with it up front, deal with your separation, deal with your planning and site layout up front, and that's going to save you a lot of money in the long term.
00:37:12.400 --> 00:37:15.440
It sounds like you've definitely got experience in that sector.
00:37:15.519 --> 00:37:21.519
So I certainly encourage our listeners to reach out to you if they want to get, as you've said, ahead ahead of those issues.
00:37:21.679 --> 00:37:27.039
Um, one of my final questions for you that I wanted to talk about, I know you've done a lot of work on town centers.
00:37:27.199 --> 00:37:35.599
I'm keen to, and we'll probably be teaming up and actually giving advice to various clients on the development of town centres, the timing, the layout, and things like that.
00:37:35.760 --> 00:37:48.480
Um, what are some of the themes or trends or observations that you've seen in your travels, whether it's from a supermarket perspective or just generally in terms of the development of those town centers?
00:37:48.800 --> 00:38:05.199
I think along the way, I've really gained a lot of experience from my time when I was in local government to working with councils because often an urban design framework or layout will come from a council or an urban design person who's not necessarily a commercial person.
00:38:05.360 --> 00:38:22.239
So often the time you will lose up front is negotiating a good outcome on a plan and not just having a main street theme center because someone thinks it's a great idea, but actually trying to come up with a solution that works and this is a real, a real answer.
00:38:22.320 --> 00:38:28.880
And I think there's a compromise there between delivering an outcome that the community will embrace and benefit from.
00:38:29.039 --> 00:38:34.719
And if you're a long-term retail person, you'll want the community to be on board with your design.
00:38:34.960 --> 00:38:42.719
At the moment, a big catch with um town centres and particularly outdoor town centres is very driven by your location.
00:38:42.880 --> 00:38:47.519
I've had a lot better experience in Queensland, better weather, better climates.
00:38:47.679 --> 00:38:52.239
Uh, Sydney, outdoor dining precincts, they tend to work a lot better up there.
00:38:52.400 --> 00:38:58.239
Victoria, unfortunately, Rich, we have the weather problem, and weather protection doesn't seem to go along with it.
00:38:58.480 --> 00:39:22.559
Town centres have probably had a little bit of a hard run with the four quadrant system, and a lot of those haven't really worked where you have two supermarkets and two DDSs separated by roads and not no connectivity to each other, um, typically car parking underneath, and and you tend to have a strong quadrant and maybe a half that isn't just working at the end.
00:39:22.800 --> 00:39:23.360
Very interesting.
00:39:23.440 --> 00:39:23.599
Okay.
00:39:24.000 --> 00:39:36.000
I think the town centre model is lending itself to that mixed-use entertainment, um, multifaceted approach of trying to make these retail centres serve more than one purpose.
00:39:36.159 --> 00:39:49.440
So rather than just serving a customer experience looking to go shopping, it's a customer that can come there and do a whole range of activities from entertainment, lifestyle, leisure, and and serve as a multi-purpose um project.
00:39:49.679 --> 00:39:58.320
The most valuable sites, and it's a long-term play, seem to be and driven by both the major Woolworths and Coles, is they like to be around a railway station.
00:39:58.480 --> 00:40:03.119
Because I think longer term they do see the traffic and car parking being an issue.
00:40:03.199 --> 00:40:10.079
And if you can be located around a train center and benefit from those as well, it's a win-win for both parties.
00:40:10.400 --> 00:40:11.519
Very interesting.
00:40:11.760 --> 00:40:12.079
Right.
00:40:12.159 --> 00:40:26.960
The final question from me is the retail landscape and the shopping centre landscape and supermarket landscape, what's the opportunity or to some of the most important opportunities and trends that you see over the next already here, but over the next 12 months?
00:40:27.280 --> 00:40:40.400
Yeah, again, I think Rich, because there's limited customer loyalty between the stores and you know, it's someone once said to me that there's a lot of people in the community that don't actually talk to anyone on a daily basis.
00:40:40.559 --> 00:40:45.760
They their only interaction with someone can be when they actually go shopping at the supermarket.
00:40:45.920 --> 00:40:53.599
And you'll notice when you go to a Coles or a Woolworths that the um team members on the front counter always say, Hi, how's your day going?
00:40:53.760 --> 00:41:06.079
And that's a really important element to me that people stay connected and that this essential, you know, I talk about essential service, and that was a little bit left over COVID when you know anyone that worked in supermarkets was a an essential employee.
00:41:06.320 --> 00:41:09.519
So you you were a bit you could move around quite freely.
00:41:09.679 --> 00:41:19.199
But I think it's as long as they're still staying connected with the community and providing that service because there's a lot of a push towards lower cost, yes, self-scanning.
00:41:19.760 --> 00:41:26.159
Um, you know, to me, a supermarket hasn't really changed much in 20 or 30 years in terms of design layout.
00:41:26.320 --> 00:41:43.119
You walk through, there's a fresh food area, there's a bakery, there's deli meat prep around to the right, you walk around through past the dairy section, you walk past a range of dry condoler groceries and freezer on the way out and a BWS or a licker land on the way out to finish your cycle.
00:41:43.679 --> 00:41:48.559
To me, it would be great to see a little bit more innovation in terms in terms of what they're offering.
00:41:48.800 --> 00:41:53.519
Um there's certainly a big focus on cost from both both players at the moment.
00:41:53.679 --> 00:41:57.360
Margin is being pushed and lots of other drivers impacting that.
00:41:57.519 --> 00:42:00.079
Again, these are public companies that need to make a profit.
00:42:00.159 --> 00:42:04.719
So, you know, while we say they're a community asset, they they still need to make a profit.
00:42:05.039 --> 00:42:07.840
I I would probably like to see a little bit more innovation from them.
00:42:08.000 --> 00:42:21.039
Um, you know, some of the slower take-up things have been, you know, uh car charging stations in car parks and, you know, the catch between a two-hour fast charge or 24-hour slow charge.
00:42:21.199 --> 00:42:25.679
And, you know, could you go and do a hundred dollar shop and get a free fast charge?
00:42:26.079 --> 00:42:28.559
Things like that could be done a whole lot better.
00:42:28.800 --> 00:42:48.559
Um, unfortunately, I think a lot of the supermarkets are going towards this lower cost option and almost to the point where you could put all your groceries in a shopping trolley and just push it through, it's scanned, and you tap a card and leave, um, as opposed to that customer-centric, customer-first style approach that has been there in the past.
00:42:49.199 --> 00:42:50.000
That's fascinating.
00:42:50.079 --> 00:42:53.760
You could probably do an entire episode on that topic in itself.
00:42:53.840 --> 00:42:56.239
Um, I know we're running a bit short of time today.
00:42:56.480 --> 00:43:01.360
Just to close out, did you have any final thoughts that you wanted to leave our listeners with?
00:43:01.519 --> 00:43:15.760
Um, no, look, I just think the retail market's been an exciting time in the market, and you know, everyone talks about construction costs going up, and certainly the increase or improvement in cap rates and supermarket rents has made them more viable to deliver.
00:43:15.920 --> 00:43:20.239
Um, supermarkets are uh and shopping centres are a living, breathing asset.
00:43:20.320 --> 00:43:22.960
They're not a buy, set, and forget style asset.
00:43:23.119 --> 00:43:28.000
So the more successful centres have been the ones where the owners spend a lot of time in them.
00:43:28.079 --> 00:43:35.119
And you think about some of the traditional families like the Gandels and the Alters and the Lowy's, they were all based in their big shopping centres.
00:43:35.199 --> 00:43:37.440
They all ate in the food courts and very interesting.
00:43:37.519 --> 00:43:37.679
Okay.
00:43:38.000 --> 00:43:39.440
Very familiar with all the tenants.
00:43:39.599 --> 00:43:43.519
And I walk around, there's a lot of you know, private landlords that we look after.
00:43:43.679 --> 00:43:47.679
And when I walk around their shopping centres with them, they all stop and talk to the tenants.
00:43:47.760 --> 00:43:53.360
And I'm always impressed about you know how connected they are with their tenants and interested in their businesses.
00:43:53.519 --> 00:43:59.760
So again, you buy a shopping centre, I think you buy a living, breathing asset and something you can't just really just bank.
00:44:00.159 --> 00:44:01.679
as an investment vehicle.
00:44:02.079 --> 00:44:03.280
It's a very interesting way.
00:44:04.000 --> 00:44:09.760
I'd not appreciated the people elements in the retail, the retail opportunity.
00:44:09.920 --> 00:44:10.159
All right.
00:44:10.320 --> 00:44:13.679
Well Don, look, thank you very much for coming along the show and sharing your ideas.
00:44:13.840 --> 00:44:18.320
Certainly I'll be um pointing people that reach out and I encourage everyone to do reach out.
00:44:18.400 --> 00:44:43.039
We'll be doing also just an insight summary a lot of what was discussed today because I do feel there's there's a wealth of information that people need to be aware of with their investments and their development decisions, whether it's just the pure play retail or if it's also a mixed use type of development or even for government with the development of their various town centers and that alignment with transport that Don is um so so well highlighted.
00:44:43.119 --> 00:44:49.199
So Don, thank you very much again for coming on the show and I hope you have a really good rest of the day.
00:44:50.320 --> 00:44:53.119
Hi everyone I hope that you enjoyed the session with Don today.
00:44:53.280 --> 00:45:00.639
I certainly found it fascinating all things retail, all things supermarkets and all things shopping centers.
00:45:01.039 --> 00:45:08.079
The three findings that I think that I would like everyone to just go away and reflect upon a little bit more are as follows.
00:45:08.400 --> 00:45:12.880
The first one is Don made a comment about shopping centres being living and breathing assets.
00:45:13.199 --> 00:45:21.119
I think that's a very important consideration and certainly not really one I mean my former life as a leasing lawyer that I'd really considered.
00:45:21.280 --> 00:45:30.960
But basically the fact that it's living and breathing just suggests to me that you can make commercial decisions as the actual asset and the tenancies evolve.
00:45:31.199 --> 00:45:39.920
They evolve and they mature and I think that's that's a very clever way to look at it rather than quite simply as a return on investment, which is quite clearly not the case.
00:45:40.719 --> 00:45:46.400
The second finding I think um also which is quite relevant is really the value being in the lease.
00:45:46.800 --> 00:45:56.320
I I hope that Don really convinced you just while while and how we articulate it today just the significant value that lies in those terms and conditions of the lease.
00:45:56.719 --> 00:46:11.440
And certainly I'd be um either reaching out to Don or g getting a retail and commercial leasing lawyer involved just to help you really make sure that you're both not just protected but also can maximize the upside just in terms of the value of the lease.
00:46:13.360 --> 00:46:35.840
Finally the the point that also became very clear to me is that whilst there is the resurgence of the retail center and shopping center investment, it's less so actually about retail and much more so about um capital chasing defensive income and then matching that up with population growth, supermarket dominance and then the long-term lease structures.
00:46:36.000 --> 00:46:43.199
And I think that that's really important to just keep in mind in your investment and your development decisions for this particular asset class.
00:46:43.599 --> 00:46:45.440
That's all I wanted to say today.
00:46:45.519 --> 00:46:47.840
I hope that um you have a good rest of the week.
00:46:48.000 --> 00:46:49.039
Thank you very much.
00:46:51.760 --> 00:46:54.000
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00:46:54.239 --> 00:47:01.679
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