HONG Kong’s Link REIT has confirmed its acquisition of a 50% interest in trophy Sydney retail assets the Queen Victoria Building (QVB), The Strand Arcade and The Galeries for a combined $538.2 million in Australia’s latest major retail asset transaction.
The deal, struck on a core capitalisation rate of 5.00%, represents Australia’s largest CBD shopping centre transaction since late 2017, when Vicinity Centres acquired its 50% interest in the same trio of centres, which it continues to manage.
Link REIT and its investment manager in Australia, EG Funds, bought their half-stake from Singaporean sovereign wealth fund GIC.
At the start of 2020, the centres had a moving annual turnover (MAT) of $613 million and attracted 61 million visitors per annum. The Strand Arcade ranks first and QVB ranks second in Australia for total MAT, while The Galeries ranks fourth in Australia for total specialty MAT.
The assets have a gross lettable area of 34,877 sqm and comprise 334 tenants, 46.1% of which are unique and do not have another store in Sydney’s CBD.
The 1898-built QVB comprises one of the largest footprints in Sydney’s core retail precinct, with almost 200 metres of frontage to George Street, and is recognised as Australia’s largest Victorian Arcade and Sydney’s second-most visited landmark behind the Opera House.
The Strand is the only remaining arcade of its design in the CBD.
CBRE’s Simon Rooney and Colliers’ Lachlan MacGillivray managed the campaign.
“The Link REIT/EG acquisition is expected to instil further confidence into Australia’s retail investment sector, demonstrating the enhanced institutional demand for core retail assets and the ongoing investor confidence in the future of CBD retailing,” Rooney said.
“Assets of this scale, quality and reputation are rarely sold and in the case of The Queen Victoria Building (QVB), The Strand Arcade and The Galeries, this was the first time the portfolio had been publicly offered to the market.”
The acquisition is Link REIT’s latest investment following its $683 million purchase of Sydney’s 100 Market Street office tower two years ago, and it has been pursuing additional assets as part of an open-ended mandate with EG Funds Management.
“These prime assets rarely come to market and are well placed to benefit from workers returning to their offices in the Sydney CBD and the reopening of Australian borders to international visitors,” EG’s head of capital transactions, Sean Fleming said.
Activity in the retail sector is gathering steam, headlined by UniSuper and Cbus Property buying major stakes in AMP Capital’s Pacific Fair and Macquarie Centre malls for $2.2 billion in Australia’s largest-ever retail property transaction.
GPT has confirmed the $402 million sale of Wollongong Central to Sydney-based property funds manager Haben and its Hong Kong-based backer JY Group, just as it offloads Casuarina Square in Darwin for $420 million.
Other recent major deals include Vicinity Centres acquiring a 50% interest in Harbour Town Outlets Gold Coast from Lendlease’s Australian Prime Property Fund Retail for $358 million.
Australia’s retail market activity had been dominated by neighbourhood shopping centres, convenience centres and large format complexes, which performed strongly and continued to stay open through the pandemic. Sub-regionals – the “middle child” – have also seen a resurgence, according to Real Capital Analytics’ Ben Martin Henry on Australian Property Journal’s Talking Property podcast.