Irrespective of the uncertain outlook for retail spending, large areas of the economy continuing to experience restricted physical movement, as well as numerous retail outlets closed, the surge in shopping centre transactions continued in September. Indeed, The Data App estimate the current number of shopping centres changing hands, in the three months to September, is the strongest since the transaction boom towards the end of 2017. Needless to say, both the volume of shopping centre space and the value of assets transacted are also strong and significantly higher than a year earlier.
In recent months, shopping centre transactions have been dominated by neighbourhood, convenience and large format centres. This was again the case in September, with the appetite for these, apparently safer, investment options remaining solid. Accordingly, the yields on these assets have continued to fall, opening up an ever-increasing gap with the larger shopping centres.
Mainly because shopping centre transactions have been dominated by smaller, every-day needs, retail outlets, the overall market cap rate has declined over the past year.
There is increasing certainty the economy will open up in the following weeks and months, as the vaccine rate moves higher, although interstate travel still remains a big unknown. Consequently, retail spending looks set to rebound, amply supported by a strong build-up of, Covid-induced, personal saving. However, while the retail spending demand fundamentals are robust, the outlook for retailers remains far more uncertain.
It is unclear the extent by which retailers have been permantely damaged by the pandemic and/or the shift to on-line shopping. This uncertainly, at least in the short term is likely to weigh on the larger shopping centres outlet, particularly those dominated by fashion. At the other end of the risk spectrum, neighbourhood and large format centres are likely to remain in strong demand.
For more 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/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.