An Eye to 2021

March, 2021

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Australian Shopping Centre Market Update

Market Wrap Up

2020 was the year of new phrases for the retail landscape – social distancing, sanitising, essential services, face masks, customer density per square metre, contactless parcel pick-up and unfortunately many of these terms will stick with us into 2021 and some for much longer.

It was a remarkable year for Australia and indeed the world. Some industries were impacted more by COVID-19 than others. Government imposed business hibernation and social distancing measures ensured it was an extremely challenging year for retailers and retail landlords.

Following what seemed like an apocalyptic set of circumstances for the industry, by the end of 2020 certain sectors were proving to be quite resilient and some retailers were performing quite well.

However, the retail property investment market is currently segmented and there are still many challenges ahead for some asset classes, including CBD assets and discretionary focused retail centres including regional and sub-regional centres. The standout performers included neighbourhood shopping centres, freestanding supermarkets and hardware stores.


Shaun O'Sullivan


View Profile > VIC
Don Semken


View Profile > NSW

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Where will 2021 take us..?

  • “Never let a good crisis go to waste” was the famous quote of Winston Churchill and some retailers and retail landlords used 2020 to reset business models, strategies and focus on growth areas going into 2021. It is these forward planning participants that will be best placed to leapfrog the pack in 2021. 2020 provided an opportunity for retail landlords to consider how their assets are placed amongst their competitors, identifying their strengths and where the opportunities lie to take advantage of the ‘new normal’.
  • As retailers rationalise their physical footprint and the ‘flight to quality’ assets steadily intensifies, some centres will require significant capital to remain competitive. Centres in regional locations with high levels of competition, and major tenant backfill risk will be hardest impacted, whilst centres in major metropolitan locations, with high population density, and market-leading experiential initiatives will be well-positioned to attract leading-edge retailers from a smaller than ever tenant pool.
  • The onset of the COVID-19 pandemic accelerated online penetration, with some retailers investing in digital and omnichannel networks. Retailers that benefited from cost savings associated with store closures and strong online sales were able to realise record profits. This has renewed discussions by retailers for exclusive
    turnover rent lease arrangements, whilst landlords have resisted and have begun to framework the provision of e-commerce sales in leases. This stand-off will continue to play out over 2021.
  • Challenges will continue for centres that are capital intensive or require large defensive capital to protect the asset investment.
  • Administrations remain low relative to the historical average, with landlords in some instances unable to terminate leases in accordance with the Code of Conduct. Retailers will face renewed pressure with the cessation of rent relief and consumer stimulus with the ending of Jobkeeper payments, bank mortgage relief, and superannuation access, which have provided consumer stimulus. The below chart reflects the declining number of insolvencies in the Retail Trade Sector despite very challenging trading conditions.
  • A large proportion of retailers remain on lease holdover or on short term leases, posing particular risk to centres with a high representation of discretionary retailers. We expect vacancy to increase in the short to medium-term.
  • The strong investor demand in late 2020 for neighbourhood and LFR assets sub-$100m has already continued into 2021, which is keeping downward pressure on yields.

Investment Market

Investor Supply and Demand

  • The market for sub $100 million assets will remain strong, buoyed by the low cost of debt fuelling private investors and institutional owners with a mandate to acquire ‘daily needs’ focussed assets.
  • Investors will focus on Core and Core Plus assets. Assets with income risk, particularly around major tenants and discretionary retailers, will be less attractive, however opportunities present for investors willing to accept the risk of strategically repositioning and remixing assets.
  • Potential investors and debt providers remain focussed on stabilised income, and for income stabilised assets, shopping centre total returns are going to increasingly look appealing against other asset classes and alternative investment opportunities, as indicated in the below chart.
  • Raising debt and equity will continue to be challenging for acquiring assets over $250 million.
  • We expect investor fund redemptions to result in assets being put to the market throughout 2021 and with less volatility in the global markets, vendors will be more encouraged to take stock to the market with purchaser demand more stable.
  • Border closures remain a barrier for global capital, and in some instances, interstate opportunities, impacting liquidity, particularly for larger assets.


Bond Rate Movement


  • Will the recent uptick in bond yields put a dampener on property values? Since mid-October when the 10-year Australian bond rate hit its nadir at circa 0.84% it has increased circa 87 basis points to around 1.71%. With subdued turnover growth projections and rental growth forecasts already putting downward pressure on centre income, and at a time when capital into sub-regional and regional shopping centre investment is already constrained, a sustained increase in bond yields would place further pressure on asset pricing.



Short term bond yield changes don’t immediately impact asset pricing, but a sustained increase may subdue asset values.

Income and Retail Spend

Income Analysis

  • Income risk has been a key focus for investors in recent years and none more so than the current time.
  • The Government introduced Code of Conduct was instrumental in stemming retail business failures, but it was considered to strongly favour tenants over landlords and impacted landlord cash flows.
  • The cessation of the Code subdued retail spending growth, and the ending of Job Keeper payments will put increased pressure on retailers and in turn income profiles of centres.
  • Neighbourhood centres, supermarkets, and Bunnings warehouses have attracted keen investor attention due to the high weighting of income secured by desirable non-discretionary retailers.
  • Secondary and larger regional centres with a weighting towards discretionary retailers have required significant defensive capital to preserve asset value and remain competitive.
  • Centres with Discount Department Store income risk also require significant capital sums to be reserved for repurposing large tenancies that may become vacant.
  • Retailers are still facing challenges securing sufficient inventory which is seen as a double blow to retailers after the business hibernation measures. With consumers returning to centres, limitations on stock are preventing some retailers from capturing this spend and this has impacted tenant turnover.
  • For other retailers that experienced a turnover spike during lockdown or leading into Christmas, it will be important to see if these levels of spending can be maintained into 2021. Prudent retailers are preparing for more subdued growth in 2021.
  • Bricks and Mortar retailing lost market share to online retailing during 2020. Innovative omni-channel retailers that invested in their online experiences protected revenue by transitioning sales from physical to online platforms. How much of the online spend reverts to bricks and mortar stores will depend on how long the pandemic will continue to impact bricks and mortar stores and how successful retailers and, more pressingly landlords are at enticing customers back into centres.
  • Landlords of Regional centres are reporting significant leasing spreads, particularly for discretionary categories such as fashion.



  • Turnover growth for the key non-discretionary tenants of supermarkets, pharmacies and food delivery have performed at the same or stronger levels than pre-COVID-19 as indicated above. Health services and cafes were impacted but have since rebounded to pre-COVID-19 levels nationally.
  • As expected, non-discretionary/essential spending was less impacted than discretionary spending during the height of the pandemic. Interestingly, both categories bounced back strongly once lockdown restrictions began to ease particularly in late 2020, with discretionary spending growth outstripping non-discretionary spending growth.

Repurposing Vacancies

The potential for major tenants to vacate tenancies has become far more common in recent years. Shopping centre landlords are formulating defensive strategies to repurpose at-risk large tenancies should they become vacant. There are a number of recent examples of repurposing executed successfully, however it can be a capital intensive process. Whilst returns can be low for repurposing large vacant tenancies, such projects allow landlords to replace underperforming tenants with an increased ‘daily needs’ tenant offer, differentiating the centre from its competitors. The closure of one level of David Jones at Highpoint Shopping Centre and backfilling with Kmart, the announcement that H&M will close three Australian stores and the well-publicised Target and Big W closures are current examples.

Other recent examples of repurposing include the following:

  • Auburn Central – Big W occupied a 7,159 square metre tenancy within Auburn Central leased until 2024. Big W surrendered their lease in 2020 and redevelopment of the vacant tenancy allowed the addition of ALDI and Tong Li supermarkets to the centre in addition to further speciality tenancies. This increased the WALE, better orientated the offer to the catchment, and moved the centre from a sub-regional with DDS exposure to a triple anchored neighbourhood centre.

  • Harris Farm – A former Bunnings Warehouse in the Albury CBD which Bunnings vacated in 2018. The building has been repurposed for a 4,450 square metre Harris Farms supermarket which opened in early 2021 and with early reports it is being well received by the local community.

  • Woolworths – A former Kmart freestanding tenancy. Kmart did not exercise their option term due in 2020 and the landlord secured Woolworths to relocate to the building, converting the asset from a less favoured freestanding DDS to a freestanding supermarket, which is keenly sought in the market.

  • HomeCo – There have been numerous examples of large vacant tenancies being reconfigured throughout the HomeCo portfolio. Since acquiring the vacant former Masters buildings in 2016. HomeCo has listed on the ASX with a ‘Daily Needs’ portfolio of converted Masters buildings and other acquired centres with a total asset value of circa $1 billion.


Retailer Performance

Tenant failures have been well publicised over recent years and the rate of failures, particularly in the fashion category is an obvious concern for the industry. As noted earlier in this report, there has been a reduction of tenants entering administration in recent months, despite Australia being in an economic recession, and this trend is expected to reverse once a number of tenant and retailer protection and support measures are removed.

Despite the challenging retailing conditions, some retailers have performed well over the last 12 months, not only in terms of achieving strong online sales growth, but also achieving like-for-like physical store sales growth. The below graph outlines a selection of those retailers that have reported turnover growth both online and in their physical stores. Whilst is it encouraging that retailers could grow instore sales during a pandemic where stores were forced to close and consumers were discouraged or prevented from shopping, the growth in online sales for these retailers still far outperformed instore sales.


Landlord Technology Innovations

  • The height of COVID restrictions saw landlords exploring innovative solutions to have customers return and engage with their centres. At Chadstone, VicinityCentres launched a new digital Parcel Concierge service, giving customers the opportunity to shop at participating retailers and brands with a single drive-thru collection point. The Parcel Concierge platform is integrated with each participating retailer’s website to ensure a seamless digital experience. Scentre Group also announced their own drive-thru click and collect service known as ‘Westfield Direct’ across its portfolio of Westfield Living Centres, enabling customers to purchase products online from multiple Westfield retailers in one transaction and pick them up from the convenience of their car via a contactless drive-thru location at their local centre.
  • AMP Capital’s shopping centres are the first retail portfolio in Australia and New Zealand to be mapped internally for Google Street View. With increased ‘mission shopping’ – shopping in a more planned/less browsing way, Google Street View enables customers to virtually tour the centre before they leave their home. This helps customers plan their shopping journey and familiarise themselves with their chosen centre ahead of time.


Transaction Analysis – Reflecting on 2020

  • Transaction volumes were substantially reduced during 2020, with the reduction largely due to fewer regional, sub-regional and CBD assets transacting.
  • These centre categories were the most impacted by the pandemic in terms of reduced discretionary spending, conversion to online spending, business hibernation and social distancing measures.
  • The reduced volumes reflect vendors not wanting to sell in an uncertain market and buyers being wary of retail assets in a challenging retail environment, especially considering capital constraints and border closures inhibiting inspection opportunities for interstate and global investors.



  • The volume of sales of Large Format Retail assets was significantly boosted by a large number of Bunnings’ transactions including a $353 million portfolio acquired by Charter Hall Long WALE Investment Partnership.
  • A large number and volume of neighbourhood centres transacted. These assets were keenly sought by investors as a defensive asset during the pandemic, favoured by the strong anchor tenant supporting the income profile and the non-discretionary nature of the tenant composition.



  • NSW contributed a large proportion of 2020 transactions boosted by a number of neighbourhood centres selling, including high-value neighbourhood centres Glenmore Park ($150m), Baulkham Hills ($140m), Auburn ($112m) along with the David Jones CBD store ($500m).
  • Victoria’s sale volume was largely supported by CBD assets, neighbourhood centres and a single sub-regional sale.

Transaction Volume by Purchaser – 2020

  • Institutional purchasers were dominated by ‘daily needs’ focused players including HomeCo ($432m), Prime West ($243m), SCA ($163m) and Charter Hall ($953m).

  • Foreign investor vendors included Woolworths Holdings (David Jones), JP Morgan, CBRE Global Investors.
  • A-REITs Stockland, Charter Hall and Vicinity divested centres and supermarket operators Coles and Woolworths continue to divest centres they have developed as the centres reach maturity.

Bunnings In Demand

The market’s recognition of the attractive Bunnings lease covenant and fixed rental increases has resulted in yields for Bunnings Warehouses falling in recent years. The below graph outlines this trend over the last four years with the trendline indicating a circa 100 basis point tightening in market yields. Bunnings are one of the few major retail tenants that have fixed annual rental increases with most other major retailers having rent increases subject to turnover rent thresholds, which adds risk to income growth in a low inflation environment with subdued retail spending, particularly when ‘bricks and mortar’ retailing is losing market share of turnover to online retailing. Many of the assets that have sold also feature modern structures that provide tax depreciation benefits to the owner.



m3property Consultancy

CBD Centres


  • Whilst Melbourne and Sydney CBD markets have been significantly impacted by reduced office workers, local and international students, domestic and international tourism, and lower migrant populations, interestingly, a number of key CBD assets transacted during 2020 with these assets generally reflecting ‘value add’ opportunities. This highlights investor confidence in the long term future of CBDs.


We expect the recovery of the CBD property market to be slow until office workers return to the CBD in significant capacity and until cross border domestic and international travel has recovered.

Regional Shopping Centres

  • For the first time in a number of years, no Regional Shopping Centres transacted during 2020. Opportunities to acquire partial interests will present during 2021 and with the risks of supporting retailers during a COVID lockdown subsiding, the risk to income profiles will be less than in 2020. However, the market will be keen to see the impact of retailer failures, store network rationalisations, rising vacancies and changing consumer spending patterns on income. Income support and downward pressure on rents will put pressure on forward cash flows.
  • Early indications are that whilst pedestrian volumes are still below pre-COVID levels, retail spending is growing more strongly than pedestrian volumes, indicating that consumers, when frequenting centres are doing so with a purpose to spend and/or are spending at greater levels.
  • Landlords will be faced with the challenge of enticing consumers back into centres. against rising online spending. Experiential retail is seen as a way to attract consumers to centres. Two examples of this are Indooroopilly and Sunshine Plaza Shopping Centres as shown below.


Sub-Regional Shopping Centres

  • A diverse range of Sub-Regional centres transacted over the last 12 months. The broad range of analysed yields (circa 6.25% to 8.25%) is reflective of the market’s perception of the differing income risk profile between prime and secondary Sub-Regional centres. Most Sub-Regionals to transact were in the $100m to $150m range.



Neighbourhood Shopping Centre

  • After a slow start to 2020, the neighbourhood shopping centre category finished the year very strongly, in particular in NSW with a large number of centres transacting. Broadly speaking investment yields tightened within this asset category as investors were attracted to the secure income streams of the anchor tenants and non-discretionary / daily needs retailers that performed well during the pandemic. Institutional owners Rockworth Capital, HomeCo and Primewest were acquisitive during the year.




Freestanding Supermarkets

  • Investor demand for income security has driven capital to this sector, resulting in increased pricing and lower yields. Requirements for retailers to record lease liabilities has had the consequence of Coles and Woolworths seeking shorter initial lease terms. Where 15 and 20-year lease terms were previously standard, recently the supermarket operators have looked to 12 and then 10-year initial terms with there being no repricing of assets by investors for the shorter terms. There is often insufficient yield premium applied to assets that have limited income growth potential or limited redevelopment opportunities.





Large Format Retail

  • Investors keen on the sector had limited stock to choose from with few LFR assets offered to the market during 2020. Many LFR tenants performed well during the pandemic, including homewares, sporting goods, auto parts, and outdoor recreation retailers. With management being relatively straight forward and the assets residing on large tracts of land, private investors, along with a defined group of institutional investors participate in the sector.




Outlook and Opportunities

  • International Attraction– Australia’s handling of the global pandemic has increased the standing of the market to international investors. The Australian property market was already viewed as quite transparent with relatively stable returns. However, without local operatives, challenges exist for international investors wanting to participate in the market whilst international travel is restricted.
  • Retail Spending – the discretionary market was buoyed by ‘revenge spending’ following the cessation of various State ‘lockdowns’, but the depth of this spending is likely to be limited into 2021. Other retailers that performed quite well during 2020 such as hardware, homewares, supermarkets, sportswear, and home office supplies are expected to face more modest revenue growth in 2021. Consumers will continue to be attracted to shopping local, driven by convenience and loyalty.
  • CBD Headwinds – the CBD markets will be slowest to recover with COVID-19 outbreaks continuing to stall and disrupt the recovery. Further to that, border restrictions impact tourism, migrant population and student populations, which are key drivers for CBD retail.
  • Working from home – the decentralisation of office accommodation will create the potential for hub style developments and satellite offices in suburban centres, incorporating amenity and service-rich co-working environments. Shopping centres are well placed to cater to these requirements.
  • Sub $100m Strength – the market will remain strong for well leased, stable assets with values under $100 million.
  • Sub-Regional Opportunities – attractive yields and value add opportunities for secondary assets may attract some investor attention but income profiles will need to be stable. Sub-regional centres on large tracts of metropolitan land with mixed-use potential will be the most favoured of this asset class.
  • Capital Intensive – defensive capital will be required to maintain income profiles of discretionary based centres.
  • Rising Vacancies – vacancy rates will likely be impacted by the removal of various Government introduced tenant protection measures and by continual tenant store rationalisation strategies.
  • Lease Structures – tenants will push for turnover based leases, with landlords resisting due to the lack of cash flow security and because they do not consider they should underwrite the performance of retail businesses. Further to that, Landlords will push to capture a percentage of online turnover that may be generated by ‘bricks and mortar’ experiences.
  • Cinema Challenges – The recovery of cinemas remains challenged with the advent of straight to stream services and the removal of exclusivity periods. Cinema operators will need to focus on an enhanced experiential offer to remain relevant and attractive. Cinemas were greatly impacted by COVID-19 social distancing requirements and the lack of Hollywood ‘blockbusters’ due to the impact of the pandemic on the film industry.