It continues to be the case very few shopping centres are changing hands. The Data App estimates the number of shopping centre transactions is the three months to August is over 60% lower than a year earlier. Consequently, both the volume (sqm) and value of shopping centre transactions are well down on a year earlier. The dearth of transactions makes the accuracy of cap rates particularly difficult, especially since these have been dominated by the non-discretionary, supermarket dominated, small retail assets.
The virtual drying up of shopping centre transactions is certainly not due to a lack of supply. In the three months to August The Data App identified over 400,000 sqm of retail space being placed on the market while, over the same time period, a shade over 160,000 sqm was transacted. This implies a supply overhang of close to 250,000 sqm of retail space and, while accepting the lags between listing and sales, this supply/demand differential has been a recurring trend.
It was possible a rerating of cap rates by the AREITs could provide a catalyst for higher cap rates across the board and thereby herald stronger transaction activity. This could still prove to be the case, but with only a modest rise in AREIT shopping centres cap rates, compared to actual transactions over the past year, this now seems increasingly unlikely.
Clearly, the lack of shopping centre transactions and the supply overhang illustrates the mismatch between buyer and seller price expectations. Notwithstanding a near-term decline in interest rates and an across-the-board acceleration in retail spending, shopping centre transactions are unlikely to show a meaningful pickup without an uplift in cap rates. It remains the case, when transactions do start to pick up, large destination shopping centres, with a high proportion of discretionary spending retailers, will continue to experience higher cap rates than their smaller retail counterparts.
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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.