Even though shopping centre transactions moderated in November, The Data App estimate the value of transactions for the three-month average to November, at over $2bn, was an all-time high. On the same basis, the volume of space transacted (GLA) also reached a new peak. By any measure, despite the moderation, shopping centre transactions are booming.
As the Covid induced restrictions were pared back, consumers, many armed with the Government’s stimulus packages, were able to return to the shops and, in many instances, embark on satisfying months pent-up demand. Consumer demand was not only returning, but was solidly underpinned.
Even so, it is still difficult to determine whether the upturn in retail spending is a transitory or permanent feature. Certainly, the shift to on-line shopping, whether for food or fashion, looks here to stay, although the rate of uptake for these services which occurred during the pandemic, is unlikely to be sustained. Consequently, it is impossible to determine the true extent on turnover suffered by retailers and shopping centre operator while, added to this, there is also the uncertainly surrounding the impact of the omicron variant of Covid-19.
Dominated by transactions of necessity-focussed retail outlets (standalone supermarkets, neighbourhood and large format centres), cap rates have tumbled over the past year. However, with real interest rates recently edging higher, the implied risk premium on commercial retail assets has started to diminish, albeit still above its long-term average. Should real rates continue to trend higher, the attractiveness of retail assets per se diminishes. The issue then becomes, how much compensation for risk will investors require for regional shopping centres compared to the safer option of neighbourhood and large format centres.
For more research undertaken by the http://PAR.Group/ on the impact of the pandemic and e-commerce on shopping centres refer to the links below:
http://par.group/working-from-home-is-not-a-free-lunch/
http://par.group/the-great-retail-yield-divide/
http://par.group/small-business-the-backbone-of-australias-major-regional-shopping-centres/
About PAR Group
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.