Shopping centres fall quiet: The Data App
EXPERT OBSERVER
Commercial retail property transactions virtually ground to a halt in September, with the lowest number of completed deals since April 2016 recorded.
Whilst this lack of activity may be a reflection of retail spending uncertainty, reduced lending to the sector from the banks and the growing penetration of on-line shopping, it also means greater care than usual is required interpreting the data.
TDA estimate trend cap rates fell to 6.18% in September; some 33 basis points lower than August. Consequently, trend cap rates are now at their lowest level since December 2018 and 48 basis points higher from their cyclical low in March 2018.
The price paid per square metre, in trend terms, continued to edge up further in September, to be over 16% higher since the start of the year, although still some 5% down from its peak in November 2017.
Whilst the number of completed transactions was particularly weak during September, the volume of stock being offered on the market was also low. Consequently, the amount of gross lettable area for sale was little changed, at close to 1.1 million square metres.
Irrespective of the low level of market activity during September, retail commercial cap rates have stabilised in recent months, while the price paid per square metre has edged higher.
Even so, there has been a meaningful underperformance of retail as an investment class in the past 18 months.
Whilst not conclusive, there are some early signs of an improvement in asset values in absolute terms.
Lower real yields and the cost of debt have driven other commercial asset class cap rates to record lows of late, and it is possible the rising tide of cheap capital may start to have an impact in lifting the fortunes of retail assets.
KEY FINDINGS
Highlights — Cap Rates
Cap rates for commercial shopping centres declined by 164 basis points in September to 6.54%.
In trend terms, cap rates declined by 33 basis points to 6.18% in September. Cap rates are currently 48 basis points higher from their low point of 5.70% in March 2018.
-In trend terms, cap are virtually the same as a year ago.
Highlights — Shopping Centre Turnover (Transactions)
Due to the very low level of transactions, in trend terms, the volume of Gross Lettable Area (GLA) transacted moderated during September.
This fall-back in volumes is a break from past seasonal patterns which entailed a pick-up in volumes towards the end of the year.
In trend terms, the volume of shopping centre GLA transacted and the number of transactions completed were both fell sharply during September.
In trend terms, the low number of transactions ensured the value of transactions in September remained at a modestly low level.
The value of transactions, in trend terms, moved slightly lower in September, although remaining little changed from a year earlier.
In trend terms, the price paid per square metre has edged up in recent months, to be 16.7% higher than the start of the year.
In trend terms the price paid per square metre is now 10.5% below its peak of November 2017.
is a director at The Data App
Each month The Data App (TDA) releases information on the commercial retail sector transaction capitalisation rates, as well as data on turnover by floor area and value, thus providing a comprehensive overview of the retail sector's performance.
