Trends… Some investors play to them, others steer well clear of them. But there's no avoiding that they influence markets in some shape or form. CommBank's inaugural Consumer Insights Report has unveiled a trend that could give neighbourhood real estate shares a boost.
The report gives a wide-ranging analysis of the Australian consumer. No surprise, this edition reflects how we changed our lifestyle and behaviours because of the COVID-19 pandemic.
Times are a-changing
Some changes are unsurprising, such as an increase in online shopping across nearly all channels and categories. However, other shifts are a little unexpected – such as the high priority for Australian products, and a desire for spacious layouts. It seems even with all that time separated from people, we still like our space.
Another interesting arising trend is that consumers have developed an increased desire to shop locally. Rather than making the trip to the mega-mall, or city centre, Australians want to shop more at their local suburban shopping centre/neighbourhood store.
Based on CommBank's research, 16% of respondents said they were likely to shop more at local suburban shopping centres in 2021 than pre-pandemic. Comparatively, only 10% said they were likely to shop more at large shopping centres.
Firstly, I'll point out there's a difference between what people 'think' they will do and what they actually do. However, if consumers follow the reported trend, we may see a longer-term uptick in foot traffic at local shopping centres. This might be beneficial to the Real Estate Investment Trusts (REIT) that have strong exposure to convenience-focused retail.
Real estate shares that might benefit
There are many ASX-listed REITS and property groups with exposure to suburban shopping centres, some more so than others. Here's a couple that could stand to benefit from the shift in consumer behaviour.
The first cab off the rank is HomeCo Daily Needs REIT (ASX: HDN), HomeCo is an A-REIT that invests in convenience-based assets. The trust's portfolio is spread across three sub-sectors – neighbourhood, large format retail, and health and services.
The neighbourhood portion that we're interested in constitutes 50% of REITs targeted portfolio. Furthermore, the trust held $959.3 million worth of investment properties at 31 December 2020.
In the last year 12 months, HomeCo Daily Needs has returned 2.22% excluding dividends. It is worth noting that the trust is currently trading at a 1.87% premium to its reported net tangible asset (NTA) value.
The next ASX-listed investment that might be set to benefit is SCA Property Group (ASX: SCP). With 88% of its portfolio being neighbourhood investments, SCA might experience a tailwind from consumers.
At the end of the group's first half, its NTA per unit was $2.25. Therefore, based on the property group's current share price of $2.405, it is trading at a 6.9% premium to NTA.
Foolish takeaway
Investing solely based on an expected or perceived trend may not be the soundest decision. However, the data in the Consumer Report can add to making a more informed investment decision. Only time will tell whether shopping local is a long-term change or a short-term fad.
