In the middle of last year shopping centre cap rates were averaging close to 5%, according to The Data App estimates. However, in the three months to January, cap rates were on the verge of 7%; an increase of close to 200 basis points. In spite of this pick-up in cap rates, the number of shopping centre transactions are around half those posted a year earlier. In value and volume (sqm) terms, the decline in shopping centres changing hands has been even more dramatic.
Even though the final month of the year witnessed a flurry of shopping centre transactions, they remain well down on December 2021. Consequently, according to The Data App estimates, the number of shopping centre transactions in the three months to December more than half the number posted in a year earlier. Like December last year, transactions were domination by sub-regional centres changing hands although, this time around, cap rates are significantly higher; a feature which seems likely to persist.
Shopping transactions in November were sparse, at best, meaning the three-month trend slowed further. According to The Data App estimates, the number of shopping centre transactions, in the three months to November, are around 30% of what they were a year earlier. In volume (sqm) and value terms, the decline is even greater. Meanwhile, cap rates which have risen from their sub 5%, level from the middle of the year; continue to hover around 6%.
By any measure shopping centre transactions are well down on last year and, as the year draws to a close, this profile is unlikely to change. According to The Data App estimates, the number, volume (sqm) and value of shopping centre transactions, in the three months to October, are over 50% lower compared to a year earlier. Meanwhile, cap rates have risen from their sub 5% level in June, continue to hover around the 6% level.
The number of shopping centre transactions continues to fall away, while cap rates have risen sharply. Last year recorded a surge in shopping centre transactions and some slowdown was inevitable. However, shopping centre activity has now slowed to a crawl, with The Data App estimating, in the three months to September activity, however measured is down over 50% on a year earlier. Meanwhile, cap rates continue to rise.
The rise of hybrid working and the increased uptake of on-line shopping, in the response to the COVID 19 pandemic, has had a profound impact on both office and retail property markets in Australia’s major capital cities.
Improved working flexibility, technology and less commuting have underpinned an uptake in working from home by Australian employees. The structural shift in the role of the city office and the 9-5 working model has created challenges for all capital cities across the globe. This shift has taken place despite numerous incentives and, in Australia at least, the return to the office appears to have stalled. While estimates vary, the evidence suggests, the percentage of office workers physically in the office will be well down on pre COVID 19 pandemic levels.
Shopping centre transactions continue to moderate. This follows the 2021 boom, and the move to safer smaller retail assets, backed by the big supermarket chains and large format centres, underpinned by the likes of Bunnings. As well as this, last year witnessed a number of non-core sub-regional shopping centres being offloaded. The Data App estimate, in the three months August, the number, volume and value of shopping centres continued to be significantly down on a year earlier. Even though transactions remain dominated by smaller shopping centres outlets, cap rates, after dipping below 5% in June, continue to move higher.
The number of shopping centre transactions slowed dramatically in July, while cap rates posted a reversal of their downwards trend. The Data App estimate transactions, whether measured by number, volume or value, in the three months to July, were again well down on this time last year. Furthermore, cap rates, after hitting a sub 5% cyclical low last month, rebounded to 5.3%.
Rising interest rates and inflation, tied in with a high dose of economic uncertainty, could see Australian retail property values experience meaningful falls from current levels, as investors adjusts to new post-pandemic economic conditions.
Over the course of the last two years or so, shopping centre transactions have boomed, aided by a surge in excess liquidity, both in Australia and elsewhere, boosting both real and financial asset values. This was also assisted by policy makers hammering interest rates to the floor.
Even though the number of shopping centre transactions nudged up again in June, the trend continues to moderate. According to The Data App estimates, in the three months to June, the number, volume and value of shopping centre transactions are all well down on a year ago. Cap rates also hit another new cyclical low, going under 5% for the first time.