For almost two decades, I have listened to predictions about the demise of retail property.
The threats have come thick and fast.
The Global Financial Crisis,
The rise of Amazon,
Online shopping,
COVID-19,
Interest rate shocks,
Cost-of-living pressures,
Inflation,
Labour shortages,
Fuel price surges,
Wars,
Trade wars,
And most recently, the emergence of artificial intelligence and technology-driven disruption across almost every industry.
Yet through all of it, one particular asset class has continued to demonstrate remarkable resilience.
Not regional shopping centres.
Not CBD malls.
Not fashion-focused retail precincts.
Neighbourhood shopping centres.
And more specifically, supermarket-anchored convenience centres.
The irony is that after four decades of consistently producing some of the strongest risk-adjusted returns in Australian commercial property, many investors still misunderstand what makes these assets so valuable.
The answer has very little to do with retail.
MY FIRST SHOPPING CENTRE
My relationship with neighbourhood shopping centres began in late 2009 when I was involved in the sale of Bundoora Square for retail development legend, Michael Lasky.
At the time, I could never have imagined the journey that would follow.
Over the next decade at CBRE, I specialised almost exclusively in neighbourhood shopping centre transactions.
By the conclusion of my tenure, I had participated in the sale of more than 70 neighbourhood shopping centres nationally with transaction volumes exceeding $4 billion.
In many years, our team controlled more than 80% of all neighbourhood shopping centre transactions completed across Victoria.
What fascinated me wasn’t simply the volume of transactions.
It was the consistency.
Different governments.
Different economic cycles.
Different interest rate environments.
Different consumer behaviours.
Yet the best supermarket-anchored centres continued to perform.
The reason is simple.
People may change where they buy their clothes.
They rarely change where they buy their milk.
THE GREAT MISUNDERSTANDING
The market continues to classify these assets as retail property.
Increasingly, I believe that classification is wrong.
A well-positioned neighbourhood shopping centre is not fundamentally a retail asset.
It is social infrastructure.
Think about the role these centres play within local communities.
Families buy groceries.
Patients visit doctors.
Parents collect prescriptions.
Children attend tutoring.
Residents meet for coffee.
Banking gets done.
Services are accessed.
Daily life occurs.
These centres are not discretionary destinations.
They are embedded into the routines of the communities they serve.
That distinction matters.
Because assets linked to daily human necessity behave very differently to assets linked to discretionary spending.
When economic conditions deteriorate, consumers may postpone buying a new television.
They do not postpone buying groceries.
They do not stop visiting the doctor.
They do not stop filling prescriptions.
THE NUMBERS TELL THE STORY
Recent research from CBRE highlights just how powerful this theme has become.
Neighbourhood shopping centres have delivered sector-leading investment returns of approximately 9.4% per annum over the past decade, outperforming many other major commercial property sectors.
At the same time, Australia continues to experience one of the strongest population growth rates in the developed world.
Victoria provides perhaps the clearest example.
The state’s population is forecast to grow from approximately 7 million people today to more than 10 million people over coming decades.
Melbourne is expected to become Australia’s largest city.
Every one of those additional residents will require access to food, healthcare, pharmacy services, childcare, banking, fitness and everyday convenience retail.
Unlike office workers who can work remotely or consumers who increasingly purchase discretionary goods online, people still need physical access to these essential services within their local communities.
This creates an extraordinarily powerful demand equation.
More people.
More households.
More grocery expenditure.
More healthcare utilisation.
More demand for community-based services.
CBRE forecasts Australian retail sales could exceed $530 billion by the end of the decade, representing growth of approximately 55% throughout the 2020s.
Demand is growing rapidly.
The ability to create new supply is not.
FOLLOW THE SMART MONEY
One of the most important lessons I learned during my years selling shopping centres is that institutional capital rarely moves accidentally.
When Australia’s largest property owners begin allocating billions of dollars towards a sector, it is usually worth paying attention.
Over recent years, major institutional groups including Charter Hall, QIC, GPT, Region Group and numerous private syndicators have continued increasing their exposure to convenience retail assets.
Why?
Because they recognise that assets linked to everyday human behaviour are inherently more resilient than assets dependent upon discretionary spending.
Charter Hall Retail CEO Ben Ellis recently summarised the attraction of the sector perfectly:
“High-quality neighbourhood shopping centres continue to attract significant investor interest, driven by strong population growth, resilient supermarket performance and limited incoming new supply.”
That statement captures the entire investment thesis.
Population growth is increasing demand.
Supermarket performance remains remarkably resilient.
And new supply remains constrained.
In commercial property, that combination is extraordinarily powerful.
THE SCARCITY PREMIUM NOBODY IS TALKING ABOUT
Perhaps the most overlooked aspect of neighbourhood shopping centres today is not their income.
It is their scarcity.
Twenty years ago, developing a new supermarket-anchored neighbourhood centre was relatively straightforward.
Land was cheaper.
Construction costs were manageable.
Development finance was readily available.
Planning pathways were less complex with anchor leases.
Today, the equation has fundamentally changed.
Construction costs have surged, the numbers are just not working.
Labour shortages persist.
Finance costs remain elevated.
Infrastructure contributions continue to increase.
Planning approvals are slower and more uncertain.
The consequence is significant.
Many neighbourhood shopping centres that would have been viable developments a decade ago simply no longer stack up economically.
To justify today’s development costs, developers are increasingly forced to pursue larger centres with greater exposure to specialty tenants and more aggressive rental assumptions.
But that creates a very different risk profile.
A centre anchored predominantly by supermarkets, pharmacies, medical operators and essential services behaves very differently to a centre reliant upon large amounts of discretionary specialty retail.
One is driven by daily needs, the other is driven by wants and is dependent upon consumer confidence.
This is why I believe existing convenience centres possess a scarcity value that is not yet fully reflected in pricing.
As development feasibility becomes increasingly challenging, existing centres become harder to replicate.
In many catchments, the biggest competitive threat is not a new shopping centre.
It’s the absence of one.
The economics simply don’t support it.
Population continues to grow.
Demand continues to increase.
Yet the likelihood of meaningful competing supply entering many established catchments continues to diminish.
That is an extraordinarily powerful combination.
The most valuable assets are not always those generating the highest income today.
They are often the assets that will be most difficult to recreate tomorrow.
THE DIAMOND FEW INVESTORS TALK ABOUT
Not all neighbourhood shopping centres are equal.
In my view, the rarest assets are those where specialty tenancy represents less than 25% of total gross lettable area.
These centres are often overlooked. I believe they should be prized.
The lower the reliance on discretionary specialty tenants, the lower the exposure to changing consumer behaviour and economic volatility.
Income becomes increasingly dependent upon non-discretionary spending which naturally grows with inflation.
The investment characteristics begin to resemble infrastructure more than traditional retail with inflation protection.
These centres are the rare diamonds of the sector.
Retailers generally pay more rents if their sales increase from inflation.
And like most rare assets, they become increasingly valuable as supply diminishes.
THE RISE OF COMMUNITY INFRASTRUCTURE CENTRES
The most exciting opportunity I see today isn’t simply owning convenience retail. It’s redefining what these assets become.
For years, the industry has viewed neighbourhood shopping centres as retail property.I believe the next evolution is to recognise them for what they increasingly are. “Community Infrastructure Centres.” Places where communities access food, healthcare, wellness, education, essential services and social connection.
The traditional supermarket anchor remains critical.But increasingly, the strongest centres will be those that combine grocery retail with healthcare and other essential services.
Interestingly, this thinking is increasingly aligned with institutional investors.
One of the largest institutional investors recently described Australian convenience retail assets as: “Curated, small-format shopping centres focused on the everyday needs of the local customer.” That phrase, “everyday needs” of the local customer perfectly captures why these assets continue to outperform.
Healthcare is where I believe the next chapter of the sector will emerge. Unlike many traditional retail uses, medical tenants cannot be digitised. They cannot be delivered by Amazon. They cannot be replaced by artificial intelligence. They require physical presence.
Doctors.
Dentists.
Radiologists.
Pathology providers.
Allied health practitioners.
Medical specialists.
Every additional healthcare tenant strengthens the centre’s relevance. Every patient visit creates additional foot traffic. Every healthcare service deepens community integration. And every improvement makes the asset more difficult to replicate.
For years, shopping centre owners focused on food and beverage expansion. The next decade may belong to healthcare. Not because retail is disappearing.
But because healthcare further embeds these assets into the daily lives of the communities they serve.
FINAL THOUGHT
For years, investors have debated whether retail property would survive.
The better question may have been whether we were looking at the right type of retail.
Because while the headlines focused on department stores, fashion chains and e-commerce disruption, supermarket-anchored neighbourhood shopping centres quietly continued doing what they have always done.
Serving communities. Meeting daily needs. Generating dependable income.
The more I study the sector today, the more convinced I become that the market’s greatest mistake is continuing to view these assets as retail property.
They are something far more valuable. They are social infrastructure. They are Community Infrastructure Centres.
And in a world increasingly defined by uncertainty, assets that facilitate everyday life may prove to be among the most defensive investments of all.
In the hands of the right managers, these assets are poised to deliver returns that may not have been in the sector for decades.
Until next time,
Mark Wizel