Tenant stock market performance and retail Real Estate prices

We investigate the predictive value of tenant stock market performance for retail real estate transaction prices. In our empirical investigation, we focus on discount and non-discount (i.e. premium and mid-tier) department stores, which represent important anchor tenant groups in general-purpose shopping centres. We first show that the industry-level stock market performance of non-discount department stores, but not discount department stores, predicts retail real estate investor sentiment and total returns in the next quarter. Explanations for our findings include the struggles of non-discount department stores with changing consumer preferences, e-commerce, and discount competition, which affect their credit, bankruptcy, and store closure risk. Using a sample of 5,507 general-purpose shopping centre transactions, we then provide evidence that the stock market performance of non-discount department stores in the previous quarter has a positive relationship with transaction prices for shopping centres in lower quality locations (suburban) and of lower property quality. The stock market performance of discount department stores only has predictive value for transaction prices of malls with the highest risk to investors.