Investment activity in Australia’s commercial retail market picked up during November. While the three-month average is well down on a year ago, the month of November recorded the highest number shopping centre transactions for the year. Transactions were dominated by large format and convenience-based stores.
With border restrictions being either pared back or removed and lockdowns virtually non-existent, population mobility both within and among the states and territories has improved. This, in conjunction with attractive valuations, has increased the appeal of commercial retail property as an investment asset.
Even so, there remains both economic and financial uncertainty. Government subsidies to both individuals and businesses are to be cut, while it is unclear how much retail traffic has permanently moved on-line following the pandemic experience. This continues to make retail asset valuations difficult, especially for those shopping centres which have a high exposure to discretionary spending and/or items which can be purchased on-line.
The Data App (TDA) estimates the value of shopping centres transactions across Australia in the three months to September was down 63% on a year earlier. However, on the three-month average basis, the value of transactions in November ($210m) was higher than in October ($174m).
The number of shopping centres transacted continued to improve in November, although still down on a year earlier. In the three months to November, TDA estimate the number of transactions averaged a shade over nine, well up on the comparable figure for October. Cap rates continue to rise although, given the sample size, some care in interpretation is required. Whatever the actual level, with real rates close to zero, commercial retail assets continue to offer attractive returns.