"Whilst the retail landscape is changing, neighbourhood shopping centres are relatively insulated from the overarching threat of e-commerce," says Nick Willis of CBRE.
The shopping centres of the future will increasingly be blended with other types of property, according to a recent report from real estate agency CBRE.
The group forecasts the neighbourhood shopping centres developed as part of strata titled mixed-use developments will exceed those built as freestanding assets for the first time from 2020.
In its ViewPoint research report 'Neighbourhood shopping centres: What's convenience worth?', CBRE notes infill development has resulted in a changing environment for shopping centre development, with the retail component becoming a point of difference in mixed-use projects.
The latest report provides an overview of the investment proposition of a neighbourhood shopping centre by looking at capital flows, investor pricing, tenancy mix and development.
The research benchmarks neighbourhood shopping centres across metro versus non-metro locations, and against freestanding supermarkets and Bunning's Warehouses.
"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," says CBRE research analyst Freddie Kareh.
In Australia, supermarket, grocery and liquor retailing account for approximately 40 per cent of the circa $320 billion retail trade industry.
Whilst 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," says Kareh.
"With supermarkets repositioning their offerings and bringing more traditional specialties in house like bakery, butcher, deli and sushi centre owners need to suitably remix their offerings to prevent undercutting of existing sales, ensuring specialty tenants remain viable."
CBRE's director of Australian retail investments Mark Wizel says the online revolution and rise of e-commerce have already wrought major changes to successful centres in terms of tenancy mix, which has had very positive results.
"There is no doubt that online sales have driven sweeping changes to the traditional retail offering at shopping centres," he says.
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."
CBRE points to a noticeable convergence in capital values of neighbourhood shopping centres in metro versus non-metro locations since 2015, with the average sale price for neighbourhood centres in metro locations falling 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.
"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," says CBRE NSW retail investment team associate director Nick Willis.
"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.
"Whilst the retail landscape is changing, neighbourhood shopping centres are relatively insulated from the overarching threat of e-commerce and well positioned to capitalise on the growing consumer demand for convenience."Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
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