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“How long is this going to take?” I asked my wife, nervously, as we approached the front of the shop.

“Not long, honestly. I will be in and out in a minute” was her reply.

I didn’t believe her. The shop was packed as always on weekends in the Canberra CBD these days.

It also meant we’d be forced to wait and seek the attention of sales staff. They always seemed short staffed on these days I thought to myself.

Biting down on my lip, we entered the shop and to my utter surprise something amazing occurred.

Right on cue, we were in and out of that shop in a minute.

Seems that Darren had been put right in his place yet again.

I am not a big shopper, but my memories of weekend shopping around these sprawling terrazzo floored behemoths meant I was unprepared for how long this coffee pod trip would play out.

So the drive home gave me time to think about another huge clue staring me in the face about the current real estate cycle.

So typical of the cycle too!

I’d like to bet you have seen this too, though not realized it.

So, if you want to know what was so amazing about my recent shop then read on for a glimpse of the future it provided.

Because this little retail therapy trip simply confirmed we still have a long way to go before we even see the peak in the real estate market.

The recovery of the shopping mall.

It is so easy now to fulfill every little need and want thanks to the internet.

With the advent of the smart phone and sophisticated retailers’ apps, I can literally order anything I want from my device.

Like so many other experts, I thought this meant the end of the physical shop. I thought that the COVID lockdowns had killed it for good. That meant all these shopping and retail malls as we knew them were about to go extinct.

It seemed too big a hurdle to overcome.

So as the world was locked away for months on end, our only real contact with the outside world was online.

Be it streaming services or buying the things we took for granted at the mall.

However, the lockdowns eventually started rolling back, and it became obvious that two distinct trends had emerged.

With everyone bankrolled to the hilt thanks to the enormous government stimulus, the sale of luxury items and the demand for more retail space exploded.

According to Vcinity CEO Grant Kelley, there has been a huge turnaround in the demographic of retails buyers.

“Before COVID, 80 per cent of luxury sales were to the overseas demographic. That’s switched round,” Mr Kelley told The Australian Financial Review Property Summit.

He said luxury tenants had repositioned their business models through “promotional activity events” to find a new pool of buyers within Australia.

“I think it’s actually again, a story of how resilience can lead to a surprising result when it’s executed well,” he said.

This has seen a huge bounce back in particular for the biggest and most noteworthy shopping centers who offer the luxury brands that shoppers demand today.

Even more important though is “how” these same shoppers are engaging with their favorite brands.

And I can give you firsthand experience of it too.

People are still ordering online but now seem happy to travel to the retailer to collect the item in-store. In the Canberra example above, my wife and I were buying coffee pods ordered online.

This is where two trends collide. The easy and simply process of ordering takes a few seconds. However, we can also plan when we want to leave the house to visit the mall and maximize our weekend morning time around it.

Be it dining in or a quick browse through the aisles of a new retailer.

And that’s what my wife did. She pre-ordered online but insisted we go to the shop to pick it up.

Safe in the knowledge she was getting precisely what she wanted, at the time she chooses to do so.

From the above article quoting Grant Kelley (emphasis in bold is my own):

“You know, within Australia, last-mile delivery costs are among the highest in the world. It leads to a click-and-collect model,” he said.

“So online has actually benefited retail landlords because it’s often meant that retailers are taking up more space because they actually need additional inventory to handle the customers who are coming in to collect the goods from their store, or they’re being dispatched from their store.”

It’s the same formula as always.

Once the gains manifest, via increased sales leading to higher earnings, it’s the land that takes those same gains in the end.

And this is precisely what’s happening right across Australia’s most high profile and biggest shopping centers.

And landlords like Vcinity are reaping the benefits.

You must always put land front and centre.

It’s this exact type of development that you will miss if you buy into the media narrative and let the negative noise overtake you.

While it is understandable that events pertaining to the residential land market are foremost in people’s minds, the 18.6-year Real Estate Cycle IS the economic cycle of every developed country on earth.

And last time I looked Australia (where I reside) does not export 4-bedroom homes to overseas buyers.

There are multiple layers in play here. I have no doubt most reading this now have been affected by the central banks’ rate rise campaigns in the US, UK and elsewhere, particularly when it comes to mortgages.

I also acknowledge that this has brought hard times to many people. It’s an inevitable consequence of normalizing (which is what’s happening, most just don’t recall) interest rates closer to their historic norm.

In Australia, that historic norm is close to 5%.

What I want to bring to your attention though is more fundamental.

How exactly are we seeing, if the media are to be believed, interest rate rises squeezing the life out of every mortgage holder which will impact normal family spending patterns?

And the fact that shopping malls are crawling with consumers who are increasingly domestic based and want luxury items, regardless of their high cost?

They can’t both accurately represent what’s happening in the economy, can they?

Someone must be on the wrong side of the trend here.

Are we heading for recession thanks to no wage growth (this is a fallacy, but I will cover this in a future blog), households unable to spend due to higher mortgages and rent costs and ever rising inflation?

Or are we still on course for the greatest boom in human history, one that has been stoked by increased earnings for retailers leading to higher rents from commercial landlords before eventually being absorbed into the land price?

Driven by the more speculative and over the top behavior always exhibited during the second half of the real estate cycle which is where we are currently.

I urge you to put your mobile phone down for a minute and think about this conundrum.

And if you are still curious to the point that you need to know the true answer then the Boom Bust Bulletin will set you in the right direction.

It will teach you the history of the 18.6-year Real Estate Cycle and why it continues to repeat even to this day and guide you to the opportunities that the cycle presents as it turns.

The true key to understanding and following the real estate cycle is knowing the real drivers behind it and having the timing of when each stage of the economic cycle should be playing out.

Here is why that’s important. Vcinity has announced plans to trial ‘micro-processing hubs’ within its malls where parcels can be collated for dispatch to visiting customers.

And it sees increases in foot traffic at its more conventional malls too as CBDs welcome back their normal numbers of office workers.

Not to mention the return of tourism. It’s just so bullish right now on the ground.

Don’t be dissuaded by the negative news, find the truth to what’s happening and let the Boom Bust Bulletin show you what lies next for you and the economy.

You can find it here now.

Best wishes,

Darren J Wilson
and your Property Sharemarket Economics Team

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