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.
Whilst cap rates trekked high through the second half of last year, clearly not all shopping centres are equal. Cap rates for regional, sub-regional and major regional shopping centres have picked up dramatically, while those centres with less of a focus on discretionary spending, neighbourhood, convenience and stand-alone, have continued to experience historically low cap rates.
Looking ahead, one of the key economic debates for 2023 is the extent by which consumer spending moderates. Some consumers will be winners in the year ahead, like those without a mortgage and /or those with a significant liquidity buffer. There will also be losers, in particular, consumers who are also highly geared first home buyers, those with fixed rate mortgages coming to an end and those with little or no liquidity (saving). This development, in conjunction with modest, at best, real income growth, suggests discretionary spending will come under pressure.
So, it seems likely, in an environment of tighter capital markets, a rising cost of borrowing and a slowing in consumer spending, cap rates are likely to increase across the board. Even so, it would appear the divergence in cap rates between those shopping centre outlets dominated by supermarkets compared to larger centres, particularly with a high fashion exposure, will continue.
For further information or additional data, contact rob@thedataapp.com
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:
http://par.group/retail-cap-rates-to-rise-but-not-uniformly/
http://par.group/a-tale-of-two-cities-sydney-and-perth-post-pandemic/
http://par.group/perth-after-the-pandemic/
http://par.group/sydney-post-pandemic/
http://par.group/the-impact-of-covid-19-on-the-australian-office-market/
http://par.group/getting-quarter-of-million-workers-back-to-the-office/
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.