Investing in commercial retail property still has merit, but changing consumer behaviour as to how they interact with the sector has made asset selection the most critical element in assessing opportunities in the space, a specialist fund manager has said.
Speaking at the recent SMSF Trustee Empowerment Day Digital 2020 hosted by smstrusteenews, Thinktank investment business development manager Lauren Ryan said: “There are plenty of retail businesses that remain relevant and will continue to do so for consumers despite the disruption of e-commerce and the ease with which items can be delivered to your doorstep.
“As such, retail property should not be dismissed as an asset class worth investing in. However, the importance of asset selection is now highlighted when looking into retail assets.”
To this end, Ryan pointed out geographical areas outside central business districts are now likely to become the areas presenting the best retail property investing opportunities.
“With more people working from home and the office worker environment looking likely to remain flexible, local suburban shopping centres that have a supermarket, a chemist, Big W or Kmart and a variety of other retail goods and service providers will see an uplift in traffic and consumer spending that would otherwise be spent in the CBD or near the office,” she noted.
According to Ryan, investors still need to recognise the current consumer spending decrease due to the coronavirus pandemic, but referenced a recent media report about institutional investment strategies that should provide some optimism with regard to household discretionary spending.
“This article discusses how institutional investors are beating out private investors to purchase neighbourhood malls. The article says ‘our analysis shows that, despite these assets having shorter weighted average lease expiries and a lower percentage of income from the supermarket anchors, buyers have purchased on higher prices and tighter yields’,” she said.
“This means institutional investors are seeing value in these retail assets.”
During the same presentation, she said rental income from higher-quality residential properties will continue to be reliable albeit at reduced levels in the immediate term.