Past and Future Sources of Retail Real Estate Returns: Malls versus Centers

Abstract

This chapter analyzes retail real estate using a simple dichotomy of regional and superregional malls versus power, community, and neighborhood shopping centers. Historical retail real estate returns are attributed to the following fundamental factors: 1) initial current yield, 2) pay-out ratio, 3) growth in net operating income, and 4) changes in the going-in versus going-out capitalization rate (pricing movements). Malls have experienced lower pay-out ratios but higher earnings growth as compared to centers. As a result, the historical fundamental return (dividend yield plus earnings growth) of malls has averaged nearly a full percentage point higher than centers. Additionally, malls have experienced a more pronounced decline in capitalization rates, which, in turn, has further increased their total return as compared to centers. Separating returns into the four factors specified above appears to provide more insightful information about historical return performance than the traditionally reported income and appreciation returns. Using this four-factor model, a matrix of projected ten-year real returns is also estimated for these two types of retail real estate.KeywordsReal EstateCash FlowShopping CenterPrice MovementTotal ReturnThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.