Haratsis on the big trends shaping retail property
Tina Perinotto | 29 January 2018
Ask planning and property industry analyst Brian Haratsis what’s in store for 2018 and then brace yourself.
The changes will be huge. But some areas – artificial intelligence for instance – might take 18 months to manifest. They’re worth noting because the impact will be momentous, including on the spatial economy. Think microchips capable of six teraflops – that’s six trillion decisions per second.
Then blend that processing capacity with autonomous vehicles and the multiplicity of so-called prop-tech coming our way and you get a sense of why Haratsis is busying himself with research and writing books to help explain what the impacts will be.
We asked Haratsis first about shopping centres. What does the recent bailout from the industry by doyen Frank Lowy mean for the future of these big beasts of the property industry? Is it at last an admission that big regional shopping centres are not a model for the future? Not just because Amazon is here in Australia and in the US has forced the closure of countless malls, but because the business case for shopping centres with their massive appetite for resources, not the least of all land in a land-constrained urban world, is about to radically change?
According to Haratsis, who has made his name as a planning analyst, particularly in the retail property industry, and is founder and executive chairman of MacroPlan Dimasi, the Lowy bailout of its overseas shopping centre empire to the Unibail-Rodamco group for $32.7 billion is a signal that change is coming.
The first and most immediate clue is that the US sharemarket has probably topped out. Then there are historically low interest rates, which mean historically high capital values (the two go hand in hand). So financially it’s probably as good a time as you are ever going to get to sell out.
(The fact that Aussie born mogul Rupert Murdoch chose the same week to bail out of his mega empire may well look like a clear double warning bell when the economic historians look back on this period.)
But deeper than the short-term valuations, and more important to the property industry, are the bigger trends under way.
Rise of the fortress
When it comes to shopping centres there are two markets, Haratsis says. One is the 10-kilometre radius from the centres of Melbourne and Sydney. He calls these the “fortress”.
As the name suggests these will become special zones, with certain protections for those on the inside.
Inside Melbourne’s 10km fortress, population growth over the next 15 years is projected to be 350,000-400,000 while Sydney’s is likely to be 250,000-300,000.
In both zones land will be acutely limited. So even with competition from Amazon or eBay the stock of existing bricks and mortar retail to balance the online offerings is likely to remain constricted.
Retail servicing will likely be via AVs: airborne and terrestrial drones – the new “Deliveroos” of the industry, Haratsis says.
So while those running bricks and mortar retail on the inside of the zones will enjoy their continuing popularity they will also be protected from much competition due to the scarcity of space.
Outside of that zone is where the biggest changes are likely to occur, driven by growing pressures for resource efficiency, especially land as well as the synergies of co-location on energy and water consumption.
Haratsis says the trends are well on the way, with integrated shopping, retail, commercial and even hotel premises.
The Eastland Shopping Centre in Melbourne’s outer eastern suburb of Ringwood, for instance, now has a hotel on site, the Sage; the same has been announced for the huge super regional Chadstone Shopping Centre close to the city in its east. An office building is already onsite.
That’s the way of the future, he says, perhaps with apartments as well. But doing such developments in complex.
Parking and transport
Among the big issues complicating development of shopping centres is the parking issue. The fear of traffic congestion is still huge and he says we still don’t have the “modal shift in public transport” necessary to deal with the capacity problem.
Both Melbourne and Sydney’s trains are about 30 per cent over capacity, for instance. And in Melbourne the business case for Melbourne’s new Metro 1 is for 140,000 patrons but the population data we’ve seen is for well over that amount inside the “fortress”.
Haratsis agrees these preoccupations are also partly at least a function of planners not appreciating how fast AVs will arrive.
Outside of the “fortress” big shopping centres may find it hard to compete on price sensitivity with online retail champing at the profit margins and landlords may opt increasingly for big box retail.
“The rental business case will be completely different outside of the fortress planning system.”
To respond to that we have to have an opportunity to not so much deregulate everything as to create an appropriate regulatory system, Haratsis says. Otherwise people working in traditional bricks and mortar retail will be out of work.
But that’s the critical issue facing other industries too.
What about the galloping pressures from natural sustainability to conserve as many resources as possible, which there is not just a business case but a public interest case?
According to Haratsis, if the future of big shopping centres needs to be integrated – a bit like a village with a retail, commercial and residential mix, which makes more efficient use of land and sustainability outcomes in water and energy, for instance – then you need a different skillset than Westfield, for example, possesses to take advantage.
You need to be more like a Lendlease with the ability to work across platforms with different skillsets and be able to work comfortably with the financial advisory and variety of industry sectors that that implies.
“Given the capital intensity [of the retail sector] is very significant, Lendlease has done a very good job at partnering to build mixed projects around the world.
“Those more diversified companies with a range of capital sources are better placed than shopping centres with not such diversified sources to succeed,” he said.
Diverse mobility and Australian opportunities
Haratsis is currently reading a fascinating book, Platform Revolution: How Networked Markets Are Transforming the Economy – and How to Make Them Work for You.
It details the new diverse mobility needed that moves across people, finance, money and expertise.
But even within these giant seismic shifts driven by powerful technology there is opportunity for smart Australian businesses. It’s where SMEs meet the gig and sharing economies, Haratsis says, and where we can see amazing changes.
Companies such as Chemist Warehouse, for instance, now push big sales through Chinese online giant Alibaba. Another is a specialist bicycle manufacturer that has a physical presence in the local market but sells globally online.
These companies tend to need a bricks and mortar presence to become established and shore up some capital to develop the software and systems they need for global distribution. The potential, if they can do this, is very strong.
“Australia has to stop thinking about retail as something not just driven by local consumption, but global.
“Technology will soon be so powerful it will change the structure of markets. And the impact on the spatial economy will be significant.”