The surge in shopping centre transactions, which started in the second quarter of the year, continued unabated through October. The number of shopping centre transactions, according to The Data App estimates, reached an all-time record high in the three months to October. On a similar basis, the volume of shopping centre gross lettable area (GLA) transacted is the second highest on record.
Over the past six months shopping centre transactions have been dominated by neighbourhood, convenience and large format shopping centres. Whilst the appetite for these assets remained strong in October, the demand for larger centres re-emerged during the month, with the $2.2bn partial sales of Pacific Fair and the Macquarie Centre dominating events.
However, even without these two assets changing hands, the value of transactions in October alone, at close to $2 billon, would still have been the largest since November 2017. So, in terms of magnitude, whether volume (GLA), value or number of shopping centre assets transacted, October proved to be a stand-out month.
Against a backdrop of low borrowing costs and ample liquidity, along with still strong demand for relative covid safe, everyday needs, shopping centres, cap rates have continued to tumble through the year. Furthermore, the low level of real interest rates has ensured a high, above long-term average, risk premium on shopping centre assets.
With movement restrictions being lifted, retail spending has started to bounce-back. However, at this stage, it is difficult to determine how much of this is pent-up demand due to lockdowns, although spending fundamentals remain strong.
Even so, the retail landscape remains unclear. It seems the shift to on-line shopping, certainly for food and fashion, is here to stay, while it may take some time to know which retailers have been permantely damaged by the pandemic. Additionally, if real interest rates continue to edge higher, the relative attractiveness of commercial retail assets diminishes. Consequently, the safer option of 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.