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The ‘Westfield Effect’: How residential investors can profit from the shifting retail landscape
March 1, 2018Article by Paul Avery
Among the biggest property investment trends that snowballed in 2017 were the knockout performance of the logistics sector and acquisitions among operators of shopping centres.
Distribution warehouses returned 14.7% including capital growth in the year to Q3, compared with 7.7% for offices and 6.8% for retail, causing a spike in interest in a formerly unglamorous asset class (Cushman & Wakefield). Meanwhile, in the final quarter of the year European mall operator Unibail-Rodamco bought Australia’s Westfield for $24.7bn, Canada’s Brookfield bought America’s GGP for $15bn, and in Britain Hammerson bought Intu for £3.4bn (FT).
Both these shifts are reactions to the slow demise of the high street: institutional investors are sensibly piling into the infrastructure behind internet shopping and more efficient purpose-built retail destinations rather than traditional shops. But neither asset class is typically accessible to individuals outside of trusts and funds, so how can residential property investors profit from this changing landscape?
City-wide spending sprees
The answer is to piggy-back on the added value and confidence they bring to nearby residential property. This doesn’t apply to the logistics sector unfortunately: though big new warehouses bring jobs and tenants, we wouldn’t advise anyone to buy a house with a view of one. But with shopping centres, malls, retail parks, or whatever you want to call them, the opportunity is plain to see.
The creation of a city shopping centre is a monumental process that can drastically affect the fortunes of a place. This goes beyond the lifestyle benefits to owners and renters of having a retail banquet on their doorstep. A new shopping centre lugs with it buckets of regeneration cash, as well as ongoing ancillary services like street cleaning, good lighting, and plentiful parking.
Malls act as nodes of investment around which secondary spending tends to cluster: small businesses hoping to attract the attention of passing shoppers, sleek offices seeking fashionable addresses, pedestrianisation and traffic reduction schemes, public parks and artworks, tree planting, and so on. All of this makes the surrounding neighbourhood inherently more valuable.
But even more importantly, a new mall delivers an economic dividend and loads of jobs. Bradford’s Broadway shopping centre (a Westfield) is estimated to have provided 3,000 jobs and a £500m boost to the local economy when it opened in 2015. That directly increases the pool of renting households with regular incomes nearby, but higher employment city-wide also makes for happier and more prosperous places to live.
Marketplaces and market growth
So what is the evidence that new malls jumpstart local house prices? It is hard to avoid talk of the Westfield Effect – a pattern of sharply rising house prices immediately following the appearance of nearby retail destinations (of which Westfield is perhaps the best-known). This was seen most clearly in Hammersmith and Fulham, which completed Westfield London slap bang in the middle of the financial crisis, when London house prices were staggering along at 3.1% growth, yet posted a sublime 12.79% annual increase (Rightmove). The effect was hardly temporary either, and the shopping centre itself is about to undergo a further £600m extension.
Likewise, homes near Westfield Stratford have appreciated by £92,000 on average over the past eight years (Telegraph), and investors are already racing to buy near the upcoming Westfield in Croydon – creating a surge in demand that will raise prices whether the Effect takes hold or not. Furthermore, CBRE has recently confirmed that in London the average price of residential property within 500m of a department store is 83% above the average price in the wider borough.
This all makes sense, but it is also a classic chicken-and-egg situation:
- Did Westfield Stratford cause price appreciation in Newham or was Westfield attracted to the location by the growth prospects associated with the Olympic Park, and simply amplify the underlying trend?
- Is the £1.4bn Croydon Westfield a catalyst or a logical complement to the wider £5.25bn programme of investment taking place there?
- Is Westfield’s Broadway smartening up the east side of Bradford’s historic centre or filling a gap in the market created by the city’s vastly improved purchasing power?
No doubt it is really a blend of the two: new malls provide a direct bump to house prices in their vicinity, but they are also a big flashing signpost that an area was already on the up – and a ringing endorsement from a billion-pound national enterprise with a lot more at stake than any local landlord.
In either case, in can be well worth residential investors hitching their wagons to new shopping centres. As long as they are integrated intelligently and cater to latent demand in a city, they are bound to lift values over the long-term.
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