Demand for 'essential' retail assets intensifies

May, 2021

  • PDF
  • Retail
  • Valuation

Demand for ‘essential’ retail assets intensifies

“Never let a good crisis go to waste” was the famous quote of Winston Churchill, and the pandemic proved this is the case for essential retailers and retail landlords who continue to benefit from a shift in retail spending.

Retail spending on essentials intensified over 2020 and this is now translating into the property sector with demand for asset classes such as neighbourhood centres and large format retail centres increasing.

Over the first quarter of this year, there was almost $650 million in retail property transactions of which neighbourhood centres made up 43% or some $280 million.

m3property assisted a number of clients with transactions and potential acquisitions in Q1 of 2021 including CS Square ($136.5m), Watergardens Homeplace ($97m), Bellarine Village ($38m), Coles Woodend ($33m), Swan Hill Shopping Centre, Albury Convenience Centre, and Auburn Red Yard, amongst others.  Purchaser interest is continuing into Q2 as we assist clients with a number of assets currently being put to the market.

Of interest, foreign buyers made up for just 7% of retail property sales in the first quarter of this year compared to last year where they made up for 23% of the total value in sales with $1.126 billion in transactions.

Larger centres in regional locations with high levels of competition, and major tenant backfill still risk being impacted, while centres in major metropolitan locations, with high population density, and market leading experiential initiatives are well positioned to attract leading edge retailers from a smaller than ever tenant pool.

Retailers are also benefitting from having invested in digital and omnichannel networks while some are seeing their profits gain from costs savings associated with store closures and strong online sales.

The hangover of the pandemic caused issues with exclusive turnover rent lease arrangements, but landlords have begun to framework the provision of e-commerce sales in leases.

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 and this area remains a key focus.

We anticipate that some retailers will face pressure in 2021 with the cessation of rent relief and consumer stimulus with the ending of Jobkeeper payments, bank mortgage relief, and superannuation access but with the economy improving, low unemployment and a COVID-stable these risks can be reduced.

Authors

Shaun O'Sullivan

Director

View Profile > VIC

Recent Research

Insights - Adelaide Retail Market

December, 2021

View Publication > PDF
Insights - Housing Approvals Skyrocket in Geelong

September, 2021

View Publication > PDF
Insights - Backpacker Hostel Market

July, 2021

View Publication > PDF