Investors directed towards emerging markets shopping centre opportunities

Emerging markets are offering interesting investment opportunities in terms of shopping centre development and existing assets, according to the latest Global ViewPoint released by CBRE.

It suggests that lack of suitable shopping centre product, particularly pronounced in mature markets across the globe, is prompting greater expansion into emerging markets by shopping centre developers and investors than is the case for other commercial property types.

As a result, CBRE’s Research and Valuation & Advisory teams have developed a Global Shopping Centre Yield Benchmark: Emerging Markets (GSCYB) to provide greater market transparency in these often opaque markets. The key aim of the GSCYB tool is to provide a theoretical basis for the evaluation of pricing in emerging markets, and to compare against current valuation yields to identify potential mispricing. The study comprises a wide range of emerging markets, from the very nascent ones such as Armenia through to the UAE, which has a number of world class shopping centres, but is yet to develop in terms of investment market.

Graham Hughes, Executive Director of Valuation & Advisory at CBRE, said: “Valuing shopping centre assets in emerging markets, where there is little or no transactional activity, can be challenging. This is why we developed this global model. Of the 27 emerging markets we looked at most were fairly priced; however we did identify twelve markets with significant differences between modelled and current valuation yields.

“The common thread in the results is that the broad-level country risk factors – such as political and sovereign risk and corruption – dominate shopping centre pricing in emerging markets. The GSCYB results show that, when it comes to emerging markets, these have far greater impact on investor decision-making than, for example, consumer demand or real estate specific factors.”

Iryna Pylypchuk, Associate Director, EMEA Research and Consulting, said: “As well as country risk, there are also differing local factors which help to explain the variations between current valuation yields and the modelled results. In some of the markets lack of quality product offers a simple explanation as to why prime yields are not as low as we would expect. This is the case in Armenia, for example, where the market is so nascent, that the opportunities are pretty much confined to development.

“The degree of internationalisation – be it at the broader FDI level or specific to real estate – is another vital component. India and Argentina restrict inward investment, preventing international investors from driving down yields. In contrast, the weight of local capital in China and Nigeria has the opposite effect – pushing yields below where the risk profile of these markets suggests an international investor would price them.”

The Global Shopping Centre Yield Benchmark model is a multiple regression model where current net equivalent yield (as assessed by CBRE’s valuers) in each country is the dependent variable. The potential explanatory variables analysed fall into three main categories – risk, demand and real estate. The 27 emerging markets covered are truly global, spanning across Africa, Asia, Eurasia, Central and Eastern Europe, Middle East and Latin America.

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