The number of shopping centre transactions continued to edge up as the year drew to a close, resulting in them being marginally up on a year earlier. In spite of this, due to the domination of smaller assets changing hands, the volume and value of transactions, in the three months to December, remained well down on the corresponding period a year earlier. Cap rates, which were heavily impacted by the type of asset transacting through 2023, oscillated between 6% and 7%, ended the year close to 6.5%.
As the impact of Covid took during 2020, with economic and valuation uncertainty taking hold, shopping centre transactions fell away. The bounce back in transactions in 2021, virtually offsetting the fall-off the previous year, was heavily influenced by the AREITs devesting of, predominately large, shopping centres. By comparison, the past two years has witnessed more modest levels of transactions, dominated by smaller, supermarket anchored, shopping centres. Predominately, syndicated and overseas funds, helped by meaningfully higher than average cap rates, have been the main buyers of larger retail assets over the past two years, while the AREITs have remained the main sellers.
While a few large shopping centres have transacted, some on cap rates well in excess of 7%, overall, smaller shopping centres changing hands continue to dominate. With the AREITs, for the time being at least, still sellers of shopping centre assets, the pool of potential buyers remains limited. So, unless cap rates move above up from current levels (of around 6.5%) or real interest rates fall sharply, shopping centre transactions are likely to remain subdued, although it difficult to envisage transaction in 2024 being weaker than 2023.
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Further research undertaken by the http://PAR.Group/ on the impact of the pandemic and e-commerce on shopping centres refer to the links below:
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The Data App (TDA) is a member of the PAR Group, an independent research collective offering a comprehensive range of property research and analytical services. The team is experienced in economics, property research, transactional and corporate strategy; all with extensive industry involvement in both the property and finance sectors.