‘Muted growth’ for shopping centres thanks to e-commerce: BIS Economics

‘Muted growth’ for shopping centres thanks to e-commerce: BIS Economics

10 August 2018

The growth of e-commerce combined with a cyclically weaker retail environment and the prospect of softening yields will weigh on shopping centre income over the next decade, states the latest Retail Property Market report from BIS Oxford Economics.

The Retail Property Market report forecasts modest retail turnover growth over the next decade, with shopping centre net income growth likely to stay only just ahead of inflation, says The Urban Developer.

“And there is probably more downside than upside risks to that forecast,” says report author BIS senior project manager Maria Lee.

Australians are buying fewer “things”, with the share of household expenditure on clothing and footwear halving since 1984 – from 6.5 per cent to 3.1 per cent.

“Not only that, but the dollar amount spent actually fell between the 2009-10 ABS Household Expenditure Survey and the 2015-16 survey,” Lee said.

Equally poignant is the rise of online shopping, currently around 8 per cent the sector is growing at over 15 per cent annually.

“It’s a real possibility that a growth rate of 15 per cent per annum could be sustained for some time,” she said. “If so, this would result in an online market share of 22 per cent within 10 years.”

“That’s a sobering thought,” she added.

BIS Oxford forecasts “muted growth” for shopping centre incomes over coming years as a result of the change in spending habits, notes the AFR.

Consumer spending could improve early next decade as economic conditions strengthen, nevertheless BIS Oxford expects only modest retail turnover growth on average over the next 10 years.

As a result, shopping centre net income growth is forecast to stay only just ahead of inflation.

Meanwhile, investment yields are predicted to soften moderately as bond rates rise globally.

“That will put upwards pressure on retail yields. Yields will soften. That then detracts from capital values,” she said.

As a result, five-year internal rates of return for regional malls could be just 5.5 per cent on BIS Oxford’s view. Ms Lee said that forecast suggested regional malls were currently overvalued.

Strong spending growth in the lead-up to the global financial crisis had helped mask the changing nature of spending, a trend that is now becoming more significant, she said.

Then, following the GFC, falls in yields had made it easier for some landlords.

“You didn’t have to do a lot to get capital growth,” Ms Lee told the AFR.

“Now we haven’t got all these masking factors anymore. We’re facing these problems head-on.”