The report provides an overview of retailers that are expected to experience growth in floorspace requirements, the potential uplift to MAT (Moving Annual Total) by incorporating mixed-use development in traditional retail assets and what practical measures landlords can implement to ensure they remain relevant to changing consumer needs.
CBRE’s Regional Director of Retail Services, Meagan Wakefield, commented that as retailers in larger centres reduced department store and large-specialty store floor space – conserving costs and catering for increasing e-commerce demand – the opportunity existed for centre owners to reinforce the original retail recipe with the introduction of mixed-use offerings.
“Incorporating mixed-use into a precinct can help drive spending with office and education offerings providing the greatest increase in centre MAT growth,” Ms Wakefield said.
According to the report, a 10,000sqm office space could provide an additional $3 million per annum in centre MAT, while a 10,000sqm education facility could see an additional $2.2 million per annum in MAT.
Ms Wakefield added that a strategic floorplate reconfiguration, converting underutilised retail space into an attached e-commerce-driven distribution centre could benefit not just the store in reducing its footprint, but other stores in the centre.
Online retailing and the growth of e-commerce is fuelling an overall net increase in commercial property space. Landlords can capitalise on this demand for industrial space by repurposing redundant loading bays or back of house space into last mile warehouse space.
“Our analysis shows that discount department stores in centres that had a catchment with a higher population density, younger population and higher average household income were more resilient and less likely to close as part of network optimisation projects.
In discussing how the retail sector has performed in recent years, Kate Bailey, Head of Retail Research at CBRE and report author, highlighted that smaller neighbourhood shopping centres had proved more resilient in terms of capital value preservation than their regional and sub-regional counterparts.
Since 2015, neighbourhood shopping centres have experienced the highest cap rate compression at 96bps, generating 13% capital value growth (Figure 5), and outperforming sub-regional (45bps compression and 6.3% growth) and regional shopping centres (43bps and 7.2% growth).
The report also reveals that the re-pricing of retail assets, relative to other sectors, means that future total returns for the retail sector should be higher than for other lower yielding property sectors, such as office and industrial.
“Our view is that the widening retail yield spread, relative to office and industrial, will be exacerbated by the COIVID-19 pandemic’s impact on retail trade,” Ms Bailey said.
“COVID-19 has also driven the increase in online retail penetration sharply to an estimated 13.3%, a number originally not expected to be reached until 2024, and we’re now expecting to see department store selling space decrease to 2.6% annually by the end of the same year – the largest forecast decline of all retail categories,” Ms Bailey added.
“Conversely, grocery stores are slated to see the strongest growth, followed by health and beauty, while home furnishing stores are forecast to record the strongest growth in floorspace.”
CBD and regional shopping centre assets have the greatest amount of apparel selling space and will be most impacted by shrinking demand.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.