Mall values face blow as foot traffic heads online
Retail property values across the country’s largest malls could fall by as much as 30 per cent as a growing proportion of retail sales shift online, according to property advisory group PAR.
The analysis of 31 of the country’s largest shopping centres is based on an assumption that as much as 20 per cent of their tenants’ current sales will swing into the online channel, a trend already accelerated by the pandemic.
The PAR Group researchers noted that future growth of online shopping was likely to moderate from 2020 levels once a vaccine is available. Even so, the investment by retailers in their e-commerce capability, along with the rise of platforms such as Amazon, Uber Eats and Catch and quicker supply chains set up by Australia Post and others, was likely to result in e-commerce approaching 20 per cent of total retail sales within five years, they said.
“The direct impact of online leakages could push down underlying asset values by a third in trophy assets across the country,” the researchers wrote.
That forecast follows hefty writedowns already chalked up by major malls owners including Westfield operator Scentre and Vicinity, which manages the nation’s largest mall, Chadstone. Those writedowns however were driven by the disruption to physical shopping by the pandemic lockdowns, which hit rent collection initially.
Earlier this year, some brokers’ analysts were predicting peak-to-trough corrections in retail book values over the following 12 to 18 months of as much as 30 per cent.
But even before the deadly virus spread globally, British investment manager Fidelity had issued a very bearish prediction of British retail real estate assets falling in value between 20 per cent and 70 per cent, a shake-out that it said could play out in the Australian real estate sector as well.
The PAR researchers comprise industry veterans Anthony De Francesco of Real Investment Analytics, Rob Ellis of the Data App and Damian Stone of Y Research.
Their analysis was prompted by the surge into e-commerce. That rapid rise had slowed by September, but only marginally as consumers ventured back into bricks-and-mortar stores. E-commerce spending is still well above what it was a year ago.
Year on year, online sales rose 62.7 per cent in September, one of the strongest results in the history of the index, after surging 67.2 per cent in August and 66.6 per cent in July, according to the NAB online retail sales index.
The PAR analysis investigated how vulnerable shopping malls are to the exodus online by reviewing close to 10,000 retail tenancies in 31 malls across the major retail categories.
For each category, the researchers applied consensus forecasts to estimate current and future e-commerce penetration and ultimately the potential impact of sales leakage online to capital values.
Centres with higher exposure to fashion brands and food and beverage tenants were most vulnerable to losing sales to e-commerce, they found.
