Article | Intelligent Investment
Retail renaissance: Why Australian shopping centres are a lucrative investment
A closer look at the growth of shopping centre investment from $4.2 billion to an estimated $6.3 billion in the coming years.
April 11, 2024
Despite e-commerce's growing dominance in the retail sector, CBRE’s latest report indicates a resurgence in demand for Australian shopping centres.
The report forecasts that shopping centre investment will grow by circa 50 percent between 2023 and 2025 from $4.2 billion to an estimated $6.3 billion. These are significant retail figures but more importantly, they raise the question of what’s behind this surge in demand for shopping centre space during a period when shopping is increasingly moving online.
“E-commerce is not a threat to shopping centre investment; more importantly it is the other way around,” explains Sheree Griff, CBRE Pacific’s Head of Retail Property Management & Leasing.
“Retailers find the e-commerce engagement for their products is higher when they have a physical store in a shopping centre. Consumers research products online then enter the store well-educated and knowing what they are looking for.
“The in-store experience is about validating the product and ensuring it’s at the quality, sizing, and colour that the consumer expects.”
This is supported by other factors including shopping centre supply constraints in coming years. CBRE estimates 0.78 million square metres of future shopping centre supply from 2024 to 2028, a figure that is less than half of the historical average. Australian shopping centre vacancy is also currently at below five percent with researchers anticipating further vacancy rate compression as city centre performance improves.
Other factors driving demand for shopping centres involve daily needs supermarkets. Currently, 94 percent of shopping centres house at least two supermarkets which make up approximately 11 percent of gross lettable area. Omnichannel click-and-collect and return facilities, particularly for time-sensitive delivery, further justify a physical presence.
Additional influences on shopping centre investment include residential zones, capital value and occupancy costs, which are all discussed in detail in the report.
“The impact of online on shopping centres has been evident since early 2010s, so it’s already reflected in historic cap rates. This previous reset was a key reason why shopping centre cap rates were more resilient than Industrial and Office during 2022 to 2023.
“Separately, what we’ve witnessed more recently is a combination of better-than-expected retail spend, preference for omni-channel (physical try before you buy) and fewer new developments. This has continued to attract investors into a market where gross lettable per capita has shrunk favourably.”
Rooney adds that Australia’s shopping centre sector is seeing continued interest from Asia-based investors, European Pension Funds to a lesser extent, and potentially private equity.
“Australia offers a rapidly growing population, with rising incomes, which is unique in an OECD context.”
As a country, Australia spans 7.68 million square kilometres. Understanding the types of shopping centres and the locations in which they perform best is therefore paramount.
“There are multiples angles for investors to pursue in shopping centres,” says Rooney.
“High income catchments have been largely immune from the impact of interest rates. We also see opportunities in growing regional markets such as North Queensland or Western Sydney, which should benefit from increased foot-traffic.
“In some instances, large land lots which are close to public transport in inner city regions could also be re-developed into mixed use such as residential-to-rent.”
"Their focus is to ensure retailers are thriving in our shopping centres through frictionless experiences. Retailers are now creating in-store experiences to attract the consumer to stay longer and purchase more. Retail experience is about how the consumer ‘feels’ when they are shopping. Engagement shopping could be cooking schools, a basketball court within a sports store, or premium customer service where the consumer feels special.
“Consumers love the experience and memories that shopping centres create. The emotion and feeling of shopping are multi-sensory and enhances the connection we have with products, people and places, making the shopping experience more memorable.”
The report forecasts that shopping centre investment will grow by circa 50 percent between 2023 and 2025 from $4.2 billion to an estimated $6.3 billion. These are significant retail figures but more importantly, they raise the question of what’s behind this surge in demand for shopping centre space during a period when shopping is increasingly moving online.
“E-commerce is not a threat to shopping centre investment; more importantly it is the other way around,” explains Sheree Griff, CBRE Pacific’s Head of Retail Property Management & Leasing.
“Retailers find the e-commerce engagement for their products is higher when they have a physical store in a shopping centre. Consumers research products online then enter the store well-educated and knowing what they are looking for.
“The in-store experience is about validating the product and ensuring it’s at the quality, sizing, and colour that the consumer expects.”
Appetite for shopping centres
Insights from the report identify Australia’s booming spend as one of the key drivers behind shopping centre demand. CBRE’s researchers forecast that retail sales will grow to $500 billion by the end of the decade, a result supported by a triple boost of population growth, jobs growth, and income growth.This is supported by other factors including shopping centre supply constraints in coming years. CBRE estimates 0.78 million square metres of future shopping centre supply from 2024 to 2028, a figure that is less than half of the historical average. Australian shopping centre vacancy is also currently at below five percent with researchers anticipating further vacancy rate compression as city centre performance improves.
Other factors driving demand for shopping centres involve daily needs supermarkets. Currently, 94 percent of shopping centres house at least two supermarkets which make up approximately 11 percent of gross lettable area. Omnichannel click-and-collect and return facilities, particularly for time-sensitive delivery, further justify a physical presence.
Additional influences on shopping centre investment include residential zones, capital value and occupancy costs, which are all discussed in detail in the report.
Spotlight on investor sentiment
As the Pacific Head of Retail Capital Markets, Simon Rooney understands what’s keeping investor sentiment positive and where it is coming from.“The impact of online on shopping centres has been evident since early 2010s, so it’s already reflected in historic cap rates. This previous reset was a key reason why shopping centre cap rates were more resilient than Industrial and Office during 2022 to 2023.
“Separately, what we’ve witnessed more recently is a combination of better-than-expected retail spend, preference for omni-channel (physical try before you buy) and fewer new developments. This has continued to attract investors into a market where gross lettable per capita has shrunk favourably.”
Rooney adds that Australia’s shopping centre sector is seeing continued interest from Asia-based investors, European Pension Funds to a lesser extent, and potentially private equity.
“Australia offers a rapidly growing population, with rising incomes, which is unique in an OECD context.”
As a country, Australia spans 7.68 million square kilometres. Understanding the types of shopping centres and the locations in which they perform best is therefore paramount.
“There are multiples angles for investors to pursue in shopping centres,” says Rooney.
“High income catchments have been largely immune from the impact of interest rates. We also see opportunities in growing regional markets such as North Queensland or Western Sydney, which should benefit from increased foot-traffic.
“In some instances, large land lots which are close to public transport in inner city regions could also be re-developed into mixed use such as residential-to-rent.”
Turning a chore into an experience
Griff believes that bricks and mortar retail is growing and here to stay as consumers increasingly crave more experiences. As a retail veteran of 28 years, it's an ideal she cares deeply about. It’s also why she oversees a dedicated CBRE retail engagement team comprising of managers who analyse the sustainability and performance of their retailers."Their focus is to ensure retailers are thriving in our shopping centres through frictionless experiences. Retailers are now creating in-store experiences to attract the consumer to stay longer and purchase more. Retail experience is about how the consumer ‘feels’ when they are shopping. Engagement shopping could be cooking schools, a basketball court within a sports store, or premium customer service where the consumer feels special.
“Consumers love the experience and memories that shopping centres create. The emotion and feeling of shopping are multi-sensory and enhances the connection we have with products, people and places, making the shopping experience more memorable.”
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