Shopping centre transactions have moderated. Even though transactions are higher than a year earlier, the first quarter of this year has witnessed a distinct slowing in activity. Compared to the first quarter of last year, The Data App estimate, all the transactional measures are higher, while cap rates have declined. However, it was around April last year when shopping centre transactions picked up dramatically; a trend which continued through to the end of the year. Clearly, some of the slowing in the market is seasonal, but there are growing indications the boom which took place last year has passed.
Last year was a record year, with of $13bn of shopping centre transactions. Placed in perspective, this was over three times more than 2020. While there are no clear-cut reasons for the boom (ex-post rationalisation is always easy in hindsight), the pandemic certainly resulted in a surge in demand for daily needs assets, while “portfolio rebalancing” led to a number of large shopping centres, being more heavily exposed to the competition from on-line spending, being off-loaded. All of this was underpinned by cheap and ample liquidity.
Retail spending is well supported by a high level of personal saving which, if necessary, could be run down. Even so, this is not guaranteed, as these savings could be used to reduce debt levels or kept as a buffer for future needs. The other spending driver, real income growth, is likely to be pedestrian, at best.
With shopping centre portfolios more rebalanced and credit conditions marginally less relaxed, transactions seem likely to return to more normal levels. It is also worth noting the supply of shopping centre assets coming to market has picked up dramatically in recent weeks. In spite of the portfolio shift, the reference towards convenience, every day needs centres looks set to continue.
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