Following a lull in trading activity during January, shopping centre transactions strengthened during February. Whilst the number, as well as the square metres, of shopping centres changing hands in the three months to February is lower than the same time last year, it is considerably stronger than the lows posted during 2020.
The strengthening of transactions can be attributed to a number of factors.
With Government support boosting incomes, retail spending has not only held up, but grown vigourously, with supermarkets and large format outlets being the main beneficiaries. These retail assets, because of their trading strength, have invariably traded at sub six percent yields.
Additionally, with only limited returns from competing investments and the very low cost of borrowing well below the level of cap rates, makes investing in commercial retail assets a favourable proposition, particularly for value investors.
Even so, there remains considerable uncertainty surrounding retail spending after the Government’s spending subsidies end. However, the strong build-up in household deposits points a significant stock of hoarded stimulus to support spending after the fiscal boost comes to an end. Put another way, there is the potential for spending to be supported from savings rather than income.
Consequently, it is likely, attractive valuations, both in absolute and relative terms, which will continue to underpin the appeal of commercial retail assets. Furthermore, until there is greater on consumer spending, commercial retail transactions are likely to remain dominated by high quality, low risk, assets.