A new study suggests that retail centres in areas with high mortgage delinquency rates could be in trouble
First shopping malls had to contend with online merchants. Now they have to worry about whether nearby homeowners can pay their mortgages, a new study suggests.
A moderate increase in people struggling to meet their mortgage repayments could harm malls in the neighbourhood, according to new research from Morgan Stanley. Large shopping centres and their owners – who are much more dependent on consumers’ discretionary income than smaller neighbourhood stores – could be in trouble if their centres are located in suburbs with greater concentrations of mortgage delinquencies of 30 or more days, The Sydney Morning Herald reported.
“Real estate investment trusts with malls in areas of high mortgage delinquencies may be at risk of underperforming, with shoppers perhaps having less discretionary income to spend,” Morgan Stanley analysts Lauren Berry and Simon Chan said in the study.
The Morgan Stanley study follows a Moody’s report in April that studied rising mortgage delinquency by postcode. If households in problem postcodes are behind on their mortgage repayments, they are less likely to buy jewellery or expensive clothing or eat out in restaurants, Morgan Stanley said.
The average rate of mortgage arrears in Australia over the last five years was between 1.5% and 2 %, according to the Herald. The Morgan Stanley analysts compared the geographic spread of malls owned by Mirvac, Scentre Group, GPT, Stockland and Vicinity with postcodes where delinquency was under 2% and areas where it was higher.
The study found that about 80% of Mirvac, Scentre Group and Stockland’s malls were in locations with delinquency rates below 2%. Only 51% of Vicinity’s malls, however, were in areas with sub-2% delinquency rates; the rest were in postcodes with a greater concentration of defaults.
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Morgan Stanley pointed out that large shopping malls usually attract customers from more than a single postcode, and not all households are owner-occupiers with a mortgage. However, they said that over the next six months, malls’ performance maybe driven by geography and which postcodes recover best from the economic impacts of COVID-19.
“Beyond this, as omni-channel shopping continues to increase traction, borders re-open, and retail networks reassess their stores and rent expense, malls may continue to face challenges, so any advantage (e.g. exposure to lower mortgage arrears), however slight, should not be sneezed at,” Morgan Stanley said.