According to CBRE’s report, Neighbourhood shopping centres: What’s convenience worth?, supermarket, grocery and liquor retailing accounts for approximately 40 per cent of Australia’s circa $320 billion retail industry.
And while supermarkets account for only 6 per cent and 18 per cent of total cash flow in regional and sub-regional centres respectively, in neighbourhood centres, they account for approximately one third of total income.
“The importance of supermarket anchors on the viability of neighbourhood shopping centres is two pronged. In addition to the income they generate, they also drive foot traffic and specialty rents,” Freddie Kareh, CBRE research analyst, said.
But with supermarkets bringing more traditional specialties in house, such as bakery, butcher, deli and sushi products, centre owners need to remix their offerings to prevent undercutting of existing sales, ensuring specialty tenants remain viable.
CBRE director of Australian retail investments Mark Wizel said the online revolution and rise of e-commerce has already wrought major changes to successful centres in terms of tenancy mix.
“With increasing pressure on returns, we are going to see more owners shift focus to food and beverage and service and entertainment offerings designed to increase dwell time and, ultimately, retail spend,” Wizel said.
According to the CBRE study, neighbourhood shopping centres are relatively insulated from the threat of e-commerce and well positioned to capitalise on the growing consumer demand for convenience, though there has been a slight divergence in the value of neighbourhood centres in metro versus non-metro locations in recent years.
Since 2015, the average sale price for neighbourhood centres in metro locations has fallen 23 per cent from $45.4 million to $35.1 million. By contrast, the average sale price for neighbourhood centres in non-metro locations has risen 21 per cent from $31.7 million to $38.5 million over this same period, according to the CBRE study.
“As a consequence of this, the yield spread between metro and non-metro neighbourhood centres has now converged to 37bps nationally, down from 93bps in 2015,” said Nick Willis, associate director of CBRE’s NSW retail investments team.
“This trend has been driven by elevated levels of capital looking further afield in search of higher returns. Given their spreads to other retail investments, neighbourhood shopping centres appear undervalued for their risk adjusted returns.”
Freddie Kareh, CBRE research analyst, said as regional shopping centres seek to drive foot traffic through the provision of entertainment and leisure offerings, and sub-regionals reposition as service centres, the need for neighbourhoods to strengthen their identity as convenience-based centres is as relevant as ever.
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