Outlook for major shopping centres remains strong
The predominant themes that are likely to impact the shopping centre sector in the near term.
The retail sector is working through a tremendous amount of transformation caused by the following fundamental structural and technological disrupters. That transformation has been forcing both retailers and property owners to review their business models to maintain their relevance in the context of:
- Borderless globalisation of retail (bricks and mortar plus online)
- Consumer with ultimate power
- Technology changing the way people live, work and play… and shop
- Australia’s demographic and population base is evolving dramatically
AMP Capital’s “Retail of the future” research highlighted that dominant centres and the neighbourhood centres were best placed to ride over these thematics and be the best performing parts of the retail commercial property sector in the future.
Here, we explore this theme as well as some of the predominant themes that are likely to impact the shopping centre sector in the near term.
The research indicated that major centres and convenience centres, are expected to hold their occupancy rates best against the structural headwinds facing the sector, as customers and retailers gravitate to centres offering experiences and destinations shoppers want to go to, or convenience bricks and mortar locations.
The agglomeration of activity towards dominant, destinational and convenience-style shopping centres is already starting in a number of areas.
Firstly, retailers are closing less productive stores, helping concentrate performance in the stores remaining. This has prompted expansion and repositioning of certain centres to improve the experience to customers, with gains in market share of retail sales from other malls offsetting the loss of sales online.
Since the expansion of Macquarie Centre in Sydney, pedestrian traffic has doubled and shopper research indicates that the centre is attracting about a third of its total retail spend from outside the normal trade area. In AMP Capital’s view, Macquarie Centre is capturing market share because of the depth of international brands located there and the unique experience offered at that shopping centre.
For discretionary-based centres in low population growth areas with no ability to reposition or expand to capture market share, the research suggests these will feel the full force of the negative structural headwinds as they become less relevant to customers and retailers. These centres are likely to see weaker leasing demand and potentially higher vacancy rates, undermining rents and values over the long term.
As a result of all of this, AMP Capital has been repositioning the portfolios we manage so they are biased towards dominant and convenience centres, proactively expanding existing dominant centres to improve the shopping experience and capture market share. We have also sold assets that are most exposed to the structural headwinds. These assets include sub-regional centres in weak demographic areas that cannot be expanded.
We expect the trends highlighted above to slowly manifest further over the course of the next five to 10 years to the benefit of dominant and convenience centres.
About the author
Michael Kingcott is the Head of Property Investment Strategy and Research at AMP Capital leading commercial property research and investment strategy.