Retailing is going through a structural change and asset values are tumbling as the effect of falling rents and a lack of investment appetite feeds through to the market value of the properties. The impact of the covid restrictions has been to accelerate these changes but also to disguise the positives that the new retailing environment offers. Shopping centres need to change and centre owners need to transform their investments into destination retail to unlock the potential of data and brand cash flows.
Shopping centre valuations
The market value of a shopping centre is an estimate of the price that an investor would pay for the asset in the (current) open market. The conventional rent-based method of valuation, used by all UK property valuers, only looks at the actual and estimated cash flows generated by the occupation of individual shop units and they fail to capture the additional cash flows that can be generated through brand awareness, data targeting and customer loyalty. Yet, these elements are part of the owners’ own assessment of worth. Property valuers need to recognise the new drivers of value and reflect these within the estimate of market value.
In terms of investment, yields have moved out to reflect the uncertainty in the market and the erosion of retailers’ covenant strength in the current market, but are the rents being agreed capturing the impact of online sales, data collection and brand awareness? The shop window is now much bigger than the physical footprint of the shop, so how does the valuer know the real worth of the space occupied? And, in fairness to valuers, often the benefits and details of the new revenue opportunities are not being made available to them; they can’t value cash flows that are unknown to them; hence valuers’ reluctance to change their rent only based valuation models.