Our Recent Research
Housing Affordability Will Structurally Deteriorate
After dipping down, property prices now appear to have stabilised and, along with rising mortgage rates, cost-of-living pressures and a surge in migration, housing affordability has again become a key issue. Nowhere more so than Sydney, continually recognised as one of the most unaffordable cities in the world.
Housing affordability is not a recent issue, from the beginning of the twentieth century, up until the end of 1986, roughly six months of annual personal income was the benchmark for a 10% housing deposit. This figure is currently around 16 months. So, despite a decline in property prices, entering the Sydney housing market has, through time, become increasingly onerous.
Cap Rates Keep Ratcheting Higher
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
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
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
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
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.