Commercial retail property transactions in the month of April were the highest since October 2018, as some larger shopping centres were offloaded, while the demand for neighbourhood and large format centres remained solid. As a consequence, the latest figures from The Data App, show the number of transactions in the three months to April were up over 60% compared to a year earlier, while the value of transactions, at over $0.5 billion, is more than double for the same period a year ago.
With changing consumer demand patterns, along with the continual encroachment of on-line shopping, the appetite for retail space has also undergone a rapid transformation. Retail centres focussed on non-discretionary spending, such as neighbourhood and convenience centres, along with large format stores have been in high demand. Consequently, this market segment has experienced a compression in cap rates. At the other end of the spectrum, shopping centres with a strong exposure to on-line spending have witnessed a steady increase in cap rates.
So, while overall cap rates are very little changed from a year ago, the difference between say neighbourhood and sub-regional shopping centres has continued to widen.
It is very unlikely the current surge in shopping centre sales will be sustained. However, large shopping centres are likely to remain vulnerable to on-line shopping, as well as the impact on smaller retail outlets of the withdrawal of the Government assistance programs. This points to a two-tier market, where the dichotomy in cap rates between neighbourhood centres and the larger shopping centres persisting for a while yet.
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