Transactions Collapse – Risk Premium Too Low?

Shopping transactions in November were sparse, at best, meaning the three-month trend slowed further. According to The Data App estimates, the number of shopping centre transactions, in the three months to November, are around 30% of what they were a year earlier. In volume (sqm) and value terms, the decline is even greater. Meanwhile, cap rates which have risen from their sub 5%, level from the middle of the year; continue to hover around 6%.

Whilst there is a fair chance shopping centre transactions pick up from their current lifeless level, the outlook for consumer spending is uninspiring.

Income growth is modest and, whist this may pick up going forward, it may result in a reaction by the central bank, with higher interest rates, in order to nullify the possibility of a wage/price spiral. Consequently, it seems real income growth will, at best, be very modest. In addition to this headwind, next year will see some mortgages, currently on a low fixed-rate, ratchet higher. Finally, the weakness in the housing market, both residential prices and building construction, resulting in lower transactions, is likely to translate into weaker demand at large format outlets. 

The likely downside risk to retail spending seems at odds with an implied risk premium on commercial retail assets which is currently close to a ten-year plus low.

Whist there is no explicit reason to expect mean reversion of the risk premium back to a shade under 6%, investors are receiving very little risk compensation for investing in commercial retail assets in an environment of likely soft/weak retail spending. Consequently, for retail transactions to pick up, it would seem the necessary conditions are, either investors need to accept low returns, compared to history, or cap rates need to rise a good deal further.

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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: for more information.