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August 4, 2020

The global pandemic is forcing consumers to think twice before spending on everything from dining out to that new pair of shoes.

But with sales of necessities like food and household staples on the rise, local shopping centres have become one of the hottest items in commercial real estate.

Supermarket spending rose every month from March to May during lockdown in Australia, according to the Australian Bureau of Statistics.

Meanwhile, spending on clothing, footwear and personal accessories has generally fallen, except for in May as people came out of hibernation.

Real estate investors are following the money. In Australia, neighbourhood centres have accounted for 47 percent of retail asset sales volumes in the first half of 2020, more than any other retail sub-sector, according to JLL.

The appeal of these assets lies primarily in the fact they are anchored by major supermarkets, which continue to prosper on the relentless demand for household staples. They can also include properties like medical centres, gyms, homes and hotels.

“We are continuing to see increases in capital flow to convenience-based retail assets, via a combination of private investors, syndicates and offshore capital looking for scale within the sector,” says Sam Hatcher, joint head of retail investments at JLL. “Buyer demand is strong but discerning.”

Perth-based syndicate, Primewest, is behind the three largest neighbourhood centre buys since the brunt of the pandemic hit, including Pemulwuy Marketplace, West Ryde Marketplace, and Spring Farm Shopping Centre, in Sydney, for a total A$126.3 million.

All three centres will sit in Primewest’s new A$300m property fund focusing on neighbourhood centres.

A private Chinese investor snapped up Woolworths supermarket-anchored The Village Dandenong Shopping Centre, in Melbourne, for A$29.1m, reflecting an initial yield of 5.19 percent – the third neighbourhood shopping centre sold in Victoria in 2020.

And listed fund manager Elanor Investors is in final talks to purchase a mall in Queanbeyan, near Canberra, with plans to backfill the space vacated by a Target store with a medical, health and wellbeing centre.

The repositioning specialist also plans to redevelop a nearby carpark into a mixed-use scheme.

“One thing is for sure, the retail solutions of yesterday are not going to be the solutions for today,” says Matt Healy, Elanor’s head of retail, in JLL’s Perspectives podcast. “When we look at what we’re going to do with the built form of a shopping centre, that’s increasingly seeing us provide solutions that are non-retail.”

The crisis as a catalyst

Investor appetite for local, predominantly non-discretionary retail destinations has flourished over the past few years as conventional retail, such as fashion, struggles in the e-commerce age.

However, until the pandemic, transaction activity had declined 30 percent year-on-year in value terms over the previous year due to assets being so tightly held.

Now investors are capitalising, and repositioning their assets in anticipation of a long-term switch back to local living, says Lee McLaughlin, retail asset manager at JLL.

“We’re having lots of conversations about role that a retail centre plays in a community – whether it incorporates aged care because of the particular demographics, hotel accommodation, coworking, serviced apartments or health and wellbeing – and how it all flows through to retail,” she says.

Quick-thinking initiatives prompted by coronavirus-related lockdowns – including using carparks for click-and-collect, or under-used back-of-store space for online fulfilment – has also provided a catalyst for longer-term changes, McLaughlin adds.

Eyes on the prize

Both McLaughlin and Healy insist that ensuring the ongoing relevance of retail to its local environment must be a data-driven exercise, with transport and broader demographic changes key considerations to long-term viability.

Australian shopping centre owner Vicinity Centres, along with financial services company Challenger, has plans for a major redevelopment of its Bankstown Central shopping centre, in western Sydney, which will benefit from a bus interchange onsite, Bankstown train station, a future T3 metro station, and Western Sydney University’s new campus being nearby.

In stages over the next 30-years it will become a high-rise precinct incorporating offices, serviced apartments, student accommodation and apartments.

Meanwhile, Melbourne’s Waverley Gardens, owned by Elanor Investors in partnership with U.S. property funds management group, Heitman, is a triple supermarket-anchored centre being repositioned to incorporate about 500 apartments. It also takes advantage of an adjacent bus interchange, as well as the EastLink arterial road upgrade.

No one solution will fit a particular property, says Healy.

“It all depends on where it’s located, the demographic of that trade area, and the future demographic, looking at migration, and education. How are you going to ensure new customers are not only going to be shopping at your particular centre, but also buying your residential apartments or visiting the office tower that you’re going to create.

“We then look at what we can do to that asset that can provide the opportunity to really play towards a global phenomenon, which is people wanting to live work and play in an integrated and central location,” he says.

Click to read more on how COVID-19 is changing the grocery business.

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Sam Hatcher

joint head of retail investments at JLL

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