Cap Rates Start To Edge Up

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%.

Over the past year or so, commercial retail property cap rates have been driven down by strong demand for “low risk” retail assets such as neighbourhood centres, anchored by a major supermarket, as well as large format retail outlets, underpinned by the likes of Bunnings and Harvey Norman. Furthermore, demand for these assets was supported by high levels of financial liquidity, a low cost of borrowing and strong  demand for the products they sold.

With liquidity being pared back and the cost of borrowing rising, cap rates have started to edge higher. This uptick may prove to be a blip, but work carried out under the Par Group umbrella, suggests the changing environment could result in cap rates quickly returning above 6%.

Needless to say, with interest shopping continuing to encroach into bricks and mortar retail spending, particularly for clothing and other non-service-based retail, neighbourhood shopping centres are likely to be more resilient to the changing patterns of demand. In addition, despite a high level of personal saving, real income growth continues to be squeezed, while mortgage interest payments are also rising. This is likely to further increase the pressure on non-essential spending, suggesting any increase in cap rates for neighbourhood-based shopping centres is likely to continue to be more muted than for say sub-regional centres.

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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:

 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: for more information.