Shopping centres: evolve or dissolve
By Zoie Regan, Senior Investment Analyst
07 February, 2017
News early this month that Amazon is now pushing into selling car parts saw a flurry of conversations around our investment team. Given Amazon's success selling electronics and toys, the team once again queried the future of bricks and mortar retailing and the looming disaster of "Dead Malls".
However, focusing on the property aspect, our thinking hasn't changed. Firstly, Amazon (and the general growth of online retailing), do not spell the death of all retail malls and secondly, dominant, well located, actively managed regional shopping centres continue to present attractive investment opportunities.
Don't get us wrong, the threat of online shopping is real and it continues to take market share from bricks and mortar retailers. In New Zealand, online spending grew at about 14% over the last year versus core retail (excluding hospitality) +5%, with online retail sales now representing approximately 7% of all retail spending. But it's not a new threat, and like other businesses, shopping centres must continue to evolve if they are to remain relevant. And they are.
In recent years, we have seen offerings becoming increasingly diverse with other services beyond conventional retail such as restaurants/dining, movie theatres, health clubs and even libraries. Shopping centres are also jumping online with new retail websites, social media profiles and enhanced WiFi capabilities, all to improve the customer experience.
Successful shopping centres are those that: deliver respectable retail sales growth, rental growth and returns on invested capital; continually refine their offering; and increasingly focus on the social aspects of shopping to help drive and foster higher foot traffic.
So yes, while there are stories about hundreds of shopping centres across the US facing obsolescence (some estimate that 15% of US malls could falter in the next decade), online shopping is just part of the story. The US is also grappling with the consequences of years of overbuilding. We remain comfortable with our exposure to New Zealand retail property but we are keeping a wary eye on evolving consumer trends.