The following factors should be taken into account when valuing a shopping centre: DEMOGRAPHICS The demographics of the area, particularly rate of change and expenditure per household. The demographic data should be over two trade areas: TOPOGRAPHY AND VISIBILITY

Is the site high and visible? A level site is less costly to develop than a steep one. The site should be larger than current needs so that expansion is possible in the near future.


Centrality is most important as most Australian cities are "nodal" in character so that centrality will serve the greatest population. Traffic and public transport routes are generally, "radial" to and from the CBD. This gives the CBD the highest level of access and therefore, highest value. However, as cities expand convenience becomes important and so that there is competition between CBD shops and regional shopping centres.


The valuation of the physical improvements will depend on the type of shopping centre. Retail improvements have one of the highest depreciation rates because of rapid economic obsolescence. Therefore, the valuer should examine the need for rebuilding or renovation and if necessary, the present value of the expected cost is deducted from the capitalized value. Are there any council and government orders over the improvements? Check especially for heritage, fire and health orders. Check the highest and best use against current zoning. For example, the land could be on the fringe of an expanding commercial area and a commercial use may be the highest and best use.


The rent schedules of shopping centres are commonly large and complex. However, the valuer must determine the expected cash flow for the short run (the most common residue lease period) from the schedule. This may be time consuming but is an important and critical part of the valuation. The valuer will need to know the terms and conditions of the leases including escalation clauses, responsibility for outgoings, method of determining the rent (eg % of gross turnover), and base date. Commonly, the retail leases of planned shopping centres are net rental leases as the tenants pay ALL outgoings. The amount of the contribution to the Merchants' Association for each tenant should be checked. Often it is too high where tenants find themselves in a poor bargaining position.


"Mix" is the proportion of speciality shops to the "name" tenants. The major part of the value of large shopping centres is the value of the "anchor" tenancies. The tenants should be classified into the following classes based on risk to investment: Therefore, "mix" is the ratio of the above types. Some shopping centres are either too top heavy (dominated by anchor, national tenants) or too bottom heavy (dominated by individual tenants) and if the situation can be rectified, the expected income should be adjusted to the better mix.


Recently completed shopping centres are often expeditiously let up to aid sale. Many tenants are non viable and will "go broke" in the short run. Further, a new shopping centre will often show good trading figures because of novelty value. Therefore, each tenant should be examined for long term viability.


The valuer should determine whether or not the current use is the "highest and best use". If it is, the centre may require space for expansion to maintain it's competitiveness. An important limiting factor on development and expansion are traffic control regulations as shopping centres are high traffic generators.


Because shopping centres suffer from a high rate of obsolescence the valuer should determine whether or not expensive refurbishment is required in the short/medium run. This aspect relates particularly to plant and equipment such as air conditioning and escalators. The valuer can use life cycle present values to check to evaluate the plant and equipment. If new plant/equipment and/or refurbishment is required in the short run it the present value of such costs (measured in today's dollars) should be deducted from the capitalized value. Longer term replacement/refurbishment costs will be built into the reversionary capitalisation rate and therefore, as long as that rate has been properly analysed from comparable sales there is no need for direct adjustment. Is it economical to carry out major repairs? "Incurable obsolescence" may occur in older style centres and if that is the case, rebuilding may be the most economical solution.

There is no such thing as a "bad" shopping centre because generally, all established shopping centres are viable if the rents charged to the tenants are low enough (this necessarily will result in a lower value and ultimately an alternative use will become the highest and best use). The vacancy factor is a guide to whether or not rents are too high or too low.


This factor is very important as it largely determines the risk to investment in the long run and therefore, the capitalisation rate. A smaller middle suburban centre may be safer than a larger centre further in the outer suburbs because there is virtually no chance of increased competition. The valuer should check with local council for the any recent lodgement of development applications for shopping centres.


Investment management has developed a set of factors which should be analyzed when evaluating a potential investment. This is called the "swot" analysis after the 4 headings under which any investment is analyzed: A shopping centre should be analyzed under the SWOT headings and the valuation report should be constructed using the same heads.

See shopping centre hierarchy


Generally, the controls use a 5 tier hierarchy of centres: This article is only concerned with planned shopping centres. REGIONAL CENTRES Regionals are the largest of the planned shopping centres serving up to 500 000 people and typically, contain two high level anchor tenants, two low level anchor tenants (supermarkets), and 80-100 speciality shops. For example, Warringah Mall at Brookvale in NSW and the Elizabeth Centre in South Australia. Car parking is most important and typically, Regionals have parking for 1 000-3 000 cars.

EXAMPLE Westfield Marion

Westfield Marion is the largest regional shopping centre in South Australia offering more than just a shopping experience, but also fine dining and entertainment venues. The centre includes: In the course of the last eight years DIY stores and garden centres have moved out of shopping centres. To a lesser extent specialised food shops, too, such as greengrocers, fishmongers, and game and poultry shops have disappeared from town high streets. Shops selling telecommunications equipment are a new phenomenon, while computer stores are also found in more and more town centres. Planning authorities have been active in trying to protect established shopping centres particularly CBD strip centres and neighbourhood centres. This is shown from the following extract from a town plan controlling retail development:


Retail development will be permitted within the town centres. In all other circumstances, retail development will not be permitted unless:
  1. there is a proven quantitative need for the proposal;
  2. there are no suitable sites available for the proposal within or adjacent to the town centre;
    there are no sequentially preferable sites or buildings
  3. the proposal would reduce the number and length of car journeys associated with shopping trips; and
  4. the development is, or can be made, highly accessible by foot, cycle, and public transport.
Development proposals of over 1000m2 (gross floorspace) outside of the town centres will be required to demonstrate how they comply with this policy by way of a Retail Impact Assessment. Policy is generally to support town centres that have suffered against the regionals:

Maintaining the shopping function of the town centres is important in supporting the local economy and promoting more sustainable patterns of development. It is important therefore that any retail development in the wider urban area is strictly controlled. The primary objective of this policy is to maintain and enhance the vitality and viability of existing town centres through new development. However, where development is considered appropriate outside of the town centres, this policy will ensure it is directed to locations which maximise opportunities to reduce reliance on the private car.
    This policy is consistent with the Government's aim to sustain and enhance town centres by making them the focus for new retail development. This guidance is reflected in the policies of the Structure Plan which require that the majority of new retail development be based in town centre locations. The Structure Plan also defines a hierarchy of town centres . This distinction seeks to focus all new shopping development compatible with their scale, nature and character within town centres with a broad upper limit of 2,500 sq. metres.
This policy is applicable to all proposals for new retail development including new build, redevelopments, change of use, intensifications and extensions. Retail development is defined as general shops, financial and professional services and food and drink. In relation to proposals within town centre.
In assessing proposals outside of the town centres, the Council will require a Retail Impact Assessment for proposals over 1000 sq. metres (gross floorspace) to accompany any planning application. This should contain the following information. Proposals of less than 1000 sq. metres (gross floorspace) will also be assessed against the same criteria to ensure the viability and vitality of the town centres is not harmed. It is recognised that in appropriate locations small scale local shops can support communities and reduce reliance on the private car by providing day-to-day shopping facilities within local neighbourhoods.
Town plans are tending towards the protection of local shopping centres:
Changes of use from general shops (Class A1) to financial and professional services (Class A2) or food and drink restaurants and cafes (Class A3) or drinking establishments (Class A4) or hot food take- aways (Class A5) uses will not be permitted in local shopping centres, as defined on the Proposals Map, unless:-
  1. the unit has been vacant for a period of at least 1 year or evidence can be provided that the unit has been actively marketed for an A1 use for a period of at least 9 months; or
  2. the proposed use can demonstrate that it will significantly increase pedestrian footfall in the centre and will introduce a new use into the centre which meets a local need; and
  3. allowing the proposed change of use will maintain the predominance of A1 uses in the centre.
Changes of use from Class A uses to all other uses will not be permitted unless the proposal is for a community service or facility which can be demonstrated to meet a particular local need and which can be satisfactorily controlled by planning conditions.

Local shopping centres provide a range of services and facilities that meet the day-to-day shopping needs of local people. They are often centrally located within a neighbourhood and can encourage walking and cycling as a mode of transport. The centres also have a wider social role in providing places for social interaction within communities. The protection of their shopping function is therefore very important and the loss of shop units to non retail uses will be resisted.

Government guidance supports the safeguarding and strengthening of local centres by encouraging a wide range of facilities to meet people's day-to-day needs, so reducing the need to travel. Structure Plan policy requires local plans to define local centres in order to provide people with access to convenience needs and local services

Change of use includes the redevelopment of a unit to another use. For the purposes of this policy, local centres are defined as a small group of shops consisting of six or more units in a continuous elevation, usually comprising a newsagent, general grocery store, post office and other small shops of a local nature.

Whilst the objective of the policy is to retain general shops, the Council recognises that changes in peoples shopping habits may result in changes to the types of uses that are viable in local centres and to the types of uses that local people wish to see in the local centres.

The Council, therefore, accept that where there is no interest in the unit for a general shop, i.e. long term vacancy, it is in the best interests of the local centre to allow the introduction of other uses to create footfall and maintain the appearance of the centre. In addition, proposals which come from local community based groups, for example drop-in centres, can support the vitality of local centres and will be supported. In such circumstances the Council may wish to control the use, e.g. granting planning permission on a temporary basis to ensure the unit is not permanently lost from a retail use.

Also the protection of local shops:

Changes of use of general shops (Class A1), outside of town centres and local shopping centres, to financial and professional services (Class A2) or food and drink restaurants and cafes (Class A3) or drinking establishments (Class A4) or hot food take- aways (Class A5) uses will not be permitted.

Outside of the town centres and local shopping centres are a number of small shopping frontages and isolated shops, some of which help to serve the daily needs of local communities. The Council consider that general shops are more likely to meet the needs of local communities and therefore more appropriate to be dispersed within the urban area than financial/professional services or food and drink outlets. The objective of this policy is therefore to resist the spread of such uses to locations which may prejudice the vitality and viability of town and local centres. Furthermore, the policy will provide other areas with certainty that their character and amenity will be protected from financial/professional or food and drink uses.


District centres are smaller than the Regionals serving up to 100 000 people and typically, contain one high level anchor tenant or 2 low level anchor tenants ( "junior department stores"), one or two supermarkets, and 50-60 speciality 'shops. For example, Top Ryde in Sydney and Northpark in Adelaide. Car parking is less important than for Regionals and may cater for up to about 800-1000 cars.



The neighbourhood centre is smaller than the community centre. Typically, it serves 25000-50000 people, contains one low level anchor tenant (typically a strong supermarket) or two national chain stores, and 35-40 shops. Carparking will typically be about 200-400 carspaces.


The growing trend of less reliance on local shopping facilities in favour of doing  both the main and top-up shopping in major supermarkets has ensured that nationally, retail representation within neighbourhood centres has declined rapidly.

The levels of patronage at neighbourhood centres depends on both the local community’s access to major supermarkets and on the range of goods on offer at neighbourhood centres. The spatial concentration of supermarkets (such as independents) is such that some neighbourhoods are some distance from a major supermarket. When this factor is combined with the low level of car ownership in many inner suburbs certain neighbourhood centres are in fact trading strongly and provide a diverse range of goods which meet the local needs of those communities. In some centres retailers have been able to establish a niche market which enables them to compete effectively for a share of local expenditure.

Studies show that there are distinct contrasts in neighbourhood centres. In the more successful centres restrictions on non-retail uses are relaxed to allow service industries to locate there.

In some centres are performing badly, where the vacancy rates are very high, appearance, retail mix and facilities are poor. As a result the poor environmental quality of the centres blight the surrounding residential areas. Most councils adopt a flexible approach to these centres encouraging alternative uses such as residential conversion where appropriate or residential development combined with a smaller neighbourhood retail centre where viable.    


The smallest planned shopping centre is the suburban local centre. It serves up to 10 000 people and typically, contains one national chain store (typically a low level supermarket) and 10-20 "high profit" stores such as a chemist, hairdresser and greengrocer. Carparking for up to 200 cars. Since local centres are within walking distance of most clients their survival is being supported by town plans which try to reduce the number of motor vehicles on the road.


Ribbon development shopping centres are the older style non planned "strip" centres fronting busy roads. Such centres consist of mainly two storey shops with residences or offices upstairs ("lock up" shops). Ribbon shopping centres range from very small to very large. It's size is a function of the density of the surrounding population, competition from planned shopping centres, visibility, traffic flow, and ease of parking. Such centres include low level ("junior") department stores and supermarkets. The Merrylands shopping development shows a district centre surrounded by strip retail .This is most likely in older suburbs near the railway station such as Guildford.


See primary trade area (PTA)
See secondary trade area (STA)

This map shows typical spatial separation of neighbourhood centres


In the valuation report the valuer should include economic and demographic data available from the ABS and local council. Population numbers and density, spending power, and potential population change are taken into account when assessing a shopping centres viability. A shopping centre with a large PTA is prima facie a more valuable than an otherwise compatible centre with a smaller PTA. The larger the PTA then the lower the risk of the centre and the lower the capitalization rate adopted. However, this argument is subject to the potential of future competition. Trade area numbers and locations are determined by shopper survey, random sampling of shoppers' number plates and customer competitions run by the centre.

Important statistics such as household expenditure are available from the Australian Bureau of Statistics (ABS) as tabular data and on their Supermap system. A further complication to trade areas relating directly to value is the "rule of retail computability". This rule states than when two or more "prestige" tenants site together their trade area increases to more than their combined trade areas as stand alone tenants. This is phenomena also illustrates the system theory element; "synergy". Following from the above analysis the use of demographic and spatial data must be treated with caution and should be used in a general descriptive manner rather than direct determinants of value. This is because the investor in a shopping centre is most interested in the security of future rental income which is largely determined by the status of the tenant. Further, large and prestigious anchor tenants create their own trading centres.


Capitalisation rates are determined by the risk of the investment and the opportunity cost of alternative investments. The CAPM model for the construction of capitalization rates is particularly applicable to the valuation of shopping centres. Generally, risk is a function of: Therefore, large Regional Centres have the lowest capitalization rates determined largely, by the high level of the anchor tenants. The highest level anchor tenants are Myers, Grace Brothers, and David Jones. Strong anchor tenants but at a lower level are Coles and Woolworths. However, high level supermarkets such as Franklins and Bi Lo should also be included because of their large drawing power. The share value of the large public retailers is a good indicator of the relative weighting to be applied when assessing the quality of the tenant. Each class of tenant should be capitalized at different capitalization rates. For example, a shopping centre can be classified into 4 main groups of tenants:



1. High level anchor tenant: 7%
2. Low level anchor tenant: 9-10%
3. National chains: 10-11%
4. Local chains: 11-12%
5. Strong individual tenants: 11-13%
6. Remaining individual tenants: 12-15%
7. Licensees (eg occasional stallholders): 15-17%

The adopted capitalization rate is also determined by the type of business. For example, if the shop is guaranteed a monopoly in the centre (eg a newsagent) under an exclusive user clause in the commercial lease, the capitalization rate should be reduced to reflect the higher safety of the rent received from that shop. However, the exclusive use must be a viable and valuable use - Horwitz Graheme case.


All outgoings including contributions to the Merchants' Association are paid by the tenants. The following cash flow is constructed from the rental schedule.
Short term riskless discount rate using CAPM: 9% + 2%

The following is an example using DCF and variable discount rates for different risk cash flows:
DCFs $'000  QTRS
1 2





695.7  758.8
MARKET VALUE SAY: 12 200 000