Rob Ellis

Rob Ellis

The Changing Face of Retail

Australia’s largest shopping centres are undergoing a significant transformation to their tenancy mix following new consumer spending patterns after the COVID 19 pandemic, according to the latest PAR Group study.
In spite of rising cost of living pressures, a number of low price-point retailers have vacated major centres, while luxury retailers have increased have become more prevalent within the same centres since 2020.

Modest Improvement In Shopping Centre Transactions Continues

The modest increase in shopping centre transactions, posted towards the end of last year, was sustained at the start of 2024. Consequently, transactions, in the three months to January, are marginally higher than a year earlier. The volume (sqm) and value of transactions remain slightly lower than a year earlier. The low number of transactions has contributed to cap rates being volatile on a month-to-month basis, continuing to oscillate between 6% to 7%.

A Subdued Year

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%.

Some Green Shoots

The modest improvement in the number of shopping centre transactions recorded last month continues. As a consequence, transactions are well up on a year earlier, although this remains off a low base. Similarly, in the three months to November, the volume (sqm) and value of transactions, whilst modest by historical comparison, are up on a year earlier. Cap rates, even though quite erratic on a month-to-month basis, have gravitated around the 6.5% level; around 75 basis points higher than a year ago.

Cap Rates of 7%?

The last couple of months have witnessed a very modest upturn in shopping centre transactions, albeit from a very low base. Consequently, transactions are at the same level of year earlier. In spite of some large retail asset changing hands at the end of the month, both the volume and value of transactions are still well down on a year ago, reflecting the continuing bias towards smaller shopping centre outlets. Cap rates have posted large fluctuations in recent months, to be marginally higher than a year earlier, but are over 100 basis points up on the cyclical low recorded in June 22.

The Big AREIT Write-down.

A further $15 billion could be written off from the future values of Australia’s office and shopping centres assets, despite recent revaluations by Australia’s listed REITs.

Compared to asset write downs in the US and Europe, Australian listed property trusts posted only modest changes to capitalisation rates in the year to August 2023. Over the past 12 months, listed property owners have increased the cap rate of their office assets by 0.38% while, for shopping centres, cap rates have risen by 0.24%.

Why Cap Rates Are Too Low

Shopping centre transactions, despite edging up marginally in September, continue to meander along at a low rate. Whilst the number of transactions, in the three months to September is slightly down on a year earlier, the value and volume (sqm) are marginally higher. The Data App also estimates shopping centre cap rates are slightly lower than a year earlier although, given the small number of transactions, domination of small retail assets, this continues to make the accuracy of cap rates problematical.

Ample Supply, But Little Demand

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.

Shopping Centres Left On The Shelf

The number of shopping centres changing hands continues to dwindle. According to The Data App estimates, in the three months to July, the number of shopping centres transacted was less than half that recorded the same time last year. Needless to say, the volume (sqm) and value were also well down on a year earlier. The continuing dearth of transactions makes the accuracy of cap rates difficult, especially since the bulk of recent activity have been for smaller, lower yielding, retail outlets.