Investment activity for Australian commercial retail property was modest in January, and follows the spike in the number of transactions towards the end of last year. Whilst there is a high degree of volatility, and transactions are well down on a year earlier, they are, nevertheless, close to their long run trend.
Cap rates are at their lowest level, in trend terms, since September 2019, reflecting the type of retail transactions which are being completed. These have predominately been stand-alone supermarkets or high-quality retail centres. This bias towards the sale of quality assets is similarly reflected in the price paid per square metre, which is up by close to 25% on a year earlier.
In spite of considerable uncertainty surrounding future spending behaviour, after the Government’s subsidies run their course, let alone the how the uptake of e-commerce shopping will pan out, it is the attractive valuations, both in absolute and relative terms, which continue to underpin the appeal of commercial retail assets. Until there is more clarity with respect to consumer spending behaviour commercial retail transactions are likely to remain dominated by quality, low risk, assets.