By any measure shopping centre transactions are well down on last year and, as the year draws to a close, this profile is unlikely to change. According to The Data App estimates, the number, volume (sqm) and value of shopping centre transactions, in the three months to October, are over 50% lower compared to a year earlier. Meanwhile, cap rates have risen from their sub 5% level in June, continue to hover around the 6% level.
The slowing in shopping centre transactions perhaps not surprising given the surge which occurred last year, as portfolios were rebalanced, non-core assets disposed of and every day essential and large format centres and became the assets of choice. So far in 2022, the value of shopping centres transacted is around $4.3bn, which compares to over $10bn over the same time period last year. This profile is similar for both the number and volume of shopping centre transactions. Furthermore, given the flurry of transactions towards the end of last year the divergence between this year and last will inevitably be maintained.
Over the past year, with cap rates rising far less than the real interest rates, the implied commercial retail property risk premium has fallen abruptly. That is, the amount to compensation investors are receiving for taking on risk has fallen away. This simply means, either investors need to be prepared to accept exceptionally low investment returns compared to the past, or cap rates will need to rise further.
On the economic front, the outlook for consumer spending does not appear inspiring. With inflation climbing and wage growth failing to keep pace, real incomes are continuing to be squeezed. Rising mortgage rates will add to this pressure, as it impacts on the demographic with the highest marginal propensity to spend. Consequently, household budgets are likely to be crimped further. Such an outlook is likely to remain relatively more favourable towards non-discretionary spending and hence neighbourhood / convenience shopping centres.
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Further research undertaken by the http://PAR.Group/ on the impact of the pandemic and e-commerce on shopping centres refer to the links below:
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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.