Investors revenge buying as shopping centre sales skyrocket

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CONSUMERS are not the only ones revenge buying post COVID-19 lockdowns, major retail asset deals have taken the rolling three month average of shopping centre transaction volumes to an all-time high.

Despite a moderation in November, the three-month average was touching $2.07 billion, according to the latest figures from The Data App, while the volume of space changing hands also hit a record.

Recent major deals were headlined by Unisuper and Cbus Property purchasing major key stakes in AMP Capital’s Pacific Fair and Macquarie Centre malls for $2.2 billion in Australia’s largest-ever retail property transaction.

Around the same time, GPT sold Wollongong Central to Haben and its Hong Kong-based backer JY Group for $402 million, as well as its Casuarina Square in Darwin for $420 million, while Vicinity Centres traded malls on the Gold Coast, and welcomed Hong Kong’s Link REIT to joint ownership of iconic Sydney retail trio the Queen Victoria Building, The Strand Arcade and The Galeries.

“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 of pent-up demand. Consumer demand was not only returning, but was solidly underpinned,” The Data App director, Rob Ellis said.

Data from the Australian Bureau of Statistics showed retail sales jumped 4.9% in October, hitting $31.1 billion.

However, Ellis said it is still difficult to determine whether the upturn in retail spending is a transitory or permanent feature.

“Certainly, the shift to online 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 operators while, added to this, there is also the uncertainty surrounding the impact of the Omicron variant of COVID-19.”

Ellis said cap rates have tumbled over the past year from 6.18% to 5.35% as transactions were dominated by necessity-focussed retail outlets such as standalone supermarkets, neighbourhood and large format centres.

However, with the real interest rates recently edging higher, the implied risk premium on commercial retail assets has started to diminish – down to 5.13% – albeit still above its long-term average.

“Should real rates continue to trend higher, the attractiveness of retail assets per se diminished. 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,” Ellis said.