Commercial Property

Cap Rates Keep Ratcheting Higher

Commercial Property / By

Shopping centre transactions, which had started to gather some modest upwards momentum since the start of the year, virtually dried up as the Silicon Valley Bank and Credit Suisse both collapsed. Consequently, both the number and volume (sqm) of shopping centre transactions was lower in the first quarter of this year compared to a year earlier. Shopping centre cap rates have continued to edge higher across the whole spectrum of asset types, reaching their highest level since May 2016 according to The Data App estimates.

It Seems Some Shopping Centres Are A Low Risk Investment

Commercial Property / By

Whilst the number of shopping centres changing hands has started to edge higher, they remain down for the three months to February compared to a year earlier, according to The Data App estimates. As in recent months, the volume (sqm) and value of transactions are also lower than a year ago. Clearly, part of the reason for the improvement in transactions is the increase in cap rates, which are close to 150 basis points higher than a year earlier.

Where To Now For Sub-Regional Shopping Centres

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Sub regional shopping centres across Australia worth over $800 million failed to transact in 2023, highlighting the challenge determining the value of retail property assets amidst a challenging economic backdrop of high inflation, slowing retail spending, rising interest rates and an increasing cost of capital.

Cap Rates Move In On 7%, But Not All Cap Rates Are Equal

Commercial Property / By

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.

Cap Rate Jump Underpins Shopping Centre Transactions

Commercial Property / By

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.

Transactions Collapse – Risk Premium Too Low?

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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%.

Shopping Centre Transactions Remain Soft

Commercial Property / By

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.

Cap Rates Continue to Rise, Transactions Remain Weak

Commercial Property / By

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.

Cities Aren’t Working

Commercial Property / By

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.

Cap Rates Trending Up, Transactions Continue to Moderate

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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.