In spite of the growing uncertainty surrounding the impact of the omicron coronavirus variant on economic activity in general and retail spending in particular, shopping centre transactions maintained their strong momentum as the year drew to close. The Data App estimate the value of transactions reached an all-time high, for the three-month average to December, at over $2.3bn. This surpassed the previous record set in November. On the same basis, the volume of space transacted (GLA) also reached a new peak. By all measures, despite a slight moderation, shopping centre transactions remained strong as the year came to an end.
With many of the restrictions imposed on both individuals and businesses being further relaxed during December, consumers returned to the shopping centres in increasing numbers to embark on pre-Christmas spending. However, it is difficult to discern how much of this spending can be attributed to pend-up demand, and how much is a return to normal behaviour. Either way, armed with Government subsidies and an historically high level of personal saving, retail spending is well underpinned by strong fundamentals.
Irrespective of this, the increased penetration of on-line shopping looks here to stay, although the rate of uptake will likely ease as bricks and mortar retailing becomes more accessible. Australia Post estimate on-line shopping rose by 17% in the year to November 2021, albeit with significant differences around the country; ranging from 31.1% in NSW to 5.9% in Victoria. Moreover, on-line deliveries remain dominated by fashion and apparel; the retailing most prevalent in larger shopping centres.
Whilst there has more recently been an increase in the transactions of larger shopping centres, shopping centre turnover continues to be dominated by necessity-focussed retail outlets (standalone supermarkets, neighbourhood and large format centres). With investors being offered a risk premium above its long-term average, cap rates have tumbled across the board. The upsurge in the omicron variant increases the uncertainly surrounding both physical spending behaviour and the direction of real interest rates / implied risk premium. This would suggest, at least in the short run, the main appetite for retail assets will remain focussed on neighbourhood and large format centres.
For more research undertaken by the http://PAR.Group/ on the impact of the pandemic and e-commerce on shopping centres refer to the links below:
http://par.group/working-from-home-is-not-a-free-lunch/
http://par.group/the-great-retail-yield-divide/
http://par.group/small-business-the-backbone-of-australias-major-regional-shopping-centres/
About PAR Group
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. Visit: http://par.group/ for more information.