RETAIL investment is back with a vengeance with transaction volumes for the first half of the year topping $4.3 billion, outstripping the pre-COVID first-half volume in 2019 and approaching the 2020 full-year total, as a raft of regional centre sales reflect the market’s eye for convenience-based assets.
According to RCA Analytics, another $1.4 billion of retail transactions is already pending.
“2021 is shaping up to be a bit of a comeback year for the strained sector,” according to Ben Martin-Henry, head of analytics, Pacific.
High demand for neighbourhood centres has continued into 2021. During the pandemic people have been forced to shop more locally, thereby increasing the value of their local retail. In the first half of 2021, just over $330 million of these neighbourhood centres transacted.
Martin-Henry said the pandemic has also benefited big box retail such as Bunnings, as well as large format retail centres.
“Deprived of overseas travel and flush with government stimulus packages such as the federal government’s HomeBuilder grant, owners have been spending big on home improvements,” Martin-Henry said.
“Investors have taken note with both segments seeing substantial increases on previous years.”
RCA Analytics data showed over $500 million has been spent on these two asset classes, near the levels seen in 2019.
Three convenience-based retail assets have just been sold across Victoria by JLL for a combined $80 million. Coles Morwell sold for $27.85 million, Torquay Village for $40 million and Bunnings Horsham for $9.8 million.
Coles Morwell is anchored by Coles and Liquorland and complemented by seven non-discretionary specialty stores. The 5,265 sqm shopping centre is positioned on a 1.1-hectare centrally located within the centre of Morwell, nearly 150 kilometres from the Melbourne CBD. The price reflected an initial yield of 4.94%
Torquay Village is a neighbourhood shopping centre anchored by a full-line supermarket and Liquorland and accompanied by 15 specialty shops, and traded on a circa 5% yield. The centre occupies a strategic 1.4-hectare land parcel in the heart of the Torquay town centre.
Meanwhile, the Bunnings at 24-38 Wilson Street, midway to Adelaide in north western Victoria was acquired off-market by an offshore private investor from a consortium of New Zealand-based investors for $9.8 million. Occupying a 9,581 sqm site with three street frontages, the 7,465 sqm property is leased to Bunnings until 2025.
Stuart Taylor and Tom Noonan handled the sale of all three assets. Taylor said supermarkets, Bunnings leased investments and neighbourhood centres are the clear focus of the majority of active purchasers in the market, and this weight of demand is translating to yield compression and increased deal volumes.
“Neighbourhood centre yields are now at a new cyclical low, driven by an urgency for buyers to secure assets with defensive tenant profiles and long WALE.
“The proven performance of these assets combined with the record low interest rates is creating the most competitive bidding environment we have seen in Melbourne for over a decade.”
JLL research shows convenience retail assets drove Victoria’s first-half total retail transaction spend of $1.196 billion, the largest first half for the state since 2018.
Meanwhile, Altis Property Partners has just offloaded the Lake Haven Homemaker Centre on the Central Coast for $46.25 million to Metro Diversified, on an approximate yield of 6.5%. Occupants include Harvey Norman, Boating, Camping and Fishing, Pets Domain, Beds R Us, Barbeques Galore, Autobarn and Beacon Lighting.
Sub-regionals and city malls trade
Martin-Henry said sub-regional centres were one segment that had been in the doldrums. However, in the first half of 2021, sales of these centres reached just over $800 million across Australia, representing the best start to a year for the asset class since 2015. Little more than $900 million transacted over the entire year in 2020.
The average sale price rose to $100 million from the previous high of $89 million.
As lockdowns kept workers away from the CBDs and took their toll on city mall valuations, transaction volumes of city centre shops also lifted on the back of major deals. The David Jones on Elizabeth Street in Sydney sold to a consortium of Charter Hall funds for $510 million, in what was the second largest deal across any sector in the first quarter of 2021, while one-third stakes in Myer Melbourne are on their way to each of Charter Hall and Abacus, reflecting a $406 million valuation.
Martin-Henry said strong performance by specific segments of the retail sector may not be the only reason investors switched back to retail.
“The industry’s struggles impacted the value of the underlying assets. Since peaking in mid-2018, average price per sqm as measured by the RCA Hedonic Series steadily fell to reach $5,250 by late 2020, a price average not seen since early 2017.
“The declines in value may have motivated buyers to return, since retail still forms an integral part of a diversified property portfolio.
He said increased transaction volume for higher quality retail assets has pulled up average pricing, which may also have encouraged current owners to sell.
“With the market appearing to stabilise somewhat, owners seem to be more willing to part with well-performing centres because they will not necessarily have to accept bargain-basement prices.
“Whatever the investor motivation is for trading retail assets, it seems clear that 2021 may be a bit of a turning point for Australian retail investment — but, for the first time in several years, perhaps turning to something good.”