Big money deals display rising confidence in retail
Sophisticated and institutional investors are backing a retail property revival, with a spurt of major transactions indicating increased confidence in the sector.
The flurry of interest in retail assets is being underpinned by rising confidence among Australian retailers, who are looking forward to bumper trading conditions in the lead-up to Christmas.
A recent survey of Australian retailers by Deloitte showed 80 per cent expected sales growth in 2021, with more than half expecting sales to bounce back rapidly with Melbourne and Sydney now out of lockdown.
Nearly 90 per cent of respondents said they expect trading conditions to improve over the next 12 months.
Highlighting recent transactional activity was Hong Kong-listed Link Asset Management splashing $538.2 million on a 50 per cent share in three prominent retail properties in the heart of the Sydney CBD.
The assets, comprising the Queen Victoria Building, The Galleries and The Strand Arcade, will continue to be managed by shopping centres giant Vicinity Centres under a strategic partnership.
Link Asset Management chief executive George Hongchoy said the portfolio had been offered to the market for the first time.
“Given the high occupancy rate filled with leading Australian and international brands, the portfolio is well-positioned to capture the retail rebound with the improving consumption sentiment in the country,” Mr Hongchoy said.
“Coupled with the strategic partnership with a leading retail asset manager in Australia, we believe both parties will jointly enhance the portfolio to ensure these landmark assets will deliver the best retail experience to all shoppers and unlock their long-term growth potential.”
The transaction is expected to settle by the first half of next year.
Meanwhile on the Gold Coast, Sunland Group sold the yet-to-be-built The Lanes retail village at Mermaid Beach to retail investment specialist Panthera Group, in a deal worth $45.8 million, brokered by Kollosche Commercial.
The Lanes is proposed to be a 12,500 square metre shopping precinct that will feature a fresh food market hall, cafes, restaurants, a medical centre and office space.
Commercial agent Adam Grbcic of Kollosche said the sale was one of several Gold Coast retail properties that changed hands in October, following the sale of a majority stake in Pacific Fair for $2.2 billion, and a 50 per cent stake in Harbour Town for $385 million.
“Panthera has correctly identified the Gold Coast can do with an injection of high-quality retail offerings, particularly when underpinned with apartments,” Adam Grbcic said.
“We were able to show to Panthera the sector has strong long-term growth prospects, particularly when interstate and international travel opens up.
“We have seen a massive vote of confidence in the retail sector with Cbus Super and UniSuper taking a majority stake in Pacific Fair and Vicinity Centres buying a half share of Harbour Town.
“The sale of The Lanes centre, which is likely to be completed in 2023 or 2024 is further proof the sector is in good health.”
Kollosche’s Tony Grbic said there were several solid market fundamentals that were underpinning the growth cycle in big retail assets.
“This isn’t like the boom and bust cycles of the past,” he said.
“Investors who have sold off residential properties are looking to invest their cash in commercial assets that come with high yields in a place which hasn’t been as affected as Sydney and Melbourne with lockdowns.
“All this means is the future prospects are looking excellent.”
Tony Grbic said the Gold Coast’s residential property boom had piqued the interest of a range of developers, with residential players scrambling for sites from Broadbeach to Coolangatta.
“This residential market is fueling interest in retail investments, which makes sense because the retail pie is getting larger to meet the increased demand from residents and visitors,” he said.
Also changing hands this week was the Rededge Shopping Centre Goodna, located in Brisbane’s west.
Brisbane-based syndicator NATGEN Group purchased the centre off-market for $10.1 million, in a deal brokered by Savills National Retail Investments.
The purchase price reflected a yield of approximately 6 per cent.
Savills’ Jon Tyson said convenience based centres such as Redege, which is anchored by an IGA Supermarket, had become highly sought-after.
Managing director of NATGEN Group, Steven Goakes, said the centre matched its strategy of acquiring low-risk retail assets anchored by consumer staples, medical centres and food-based retailers.
Another indication of rising confidence in the retail sector was Churchill Development Group’s move to seek approval to build a $50 million shopping centre in the Gold Coast suburb of Ashmore.
Churchill lodged a development application this week for a premium retail and food marketplace, in collaboration with Steer Developments.
The site was once home to the renowned Ashmore Seafood and Steak restaurant, with the developers to pay homage to its gastronomic heritage.
“Renowned local restaurateurs Nick and Jim Carkazis spent decades building this site into a ‘must-go’ food destination,” Churchill Development Group executive director Jonathan Leishman said.
“Why change it? In fact, we want to build on their legacy and shape the site into a food emporium and retail destination like no other on the Gold Coast.”
Mr Leishman said even prior to the project being built, significant interest was pouring in from prospective tenants.
“We understand that in the past, Gold Coast Mayor Tom Tate used to frequently drop in to enjoy a steak here,” he said.
“By the end of 2023, we hope Tom will be back at Reed Street to again enjoy some of the best produce the Gold Coast has to offer.”
While the majors have been making moves, commercial investment specialists Scott & Mina O’Neill, founders of Rethink Investing, said individual investors were also increasingly interested in strong-performing retail properties.
Mr O’Neill said fast food properties tenanted by well-known brands were subject to unprecedented demand, a trend that kicked off at the onset of the pandemic.
“These well known fast-food giants are often referred to as a ‘defensive’ style of investment, as they offer you great defence against fluctuations in the economy,” he said.
“In recent times, properties such as KFC or Hungry Jacks have started trading as low as 3 per cent net yields on the sale price.
“For someone to accept such a low yield is a reflection of the strong security you can expect from the asset class.
“We like purchasing these properties when they are at the right yields as they will deliver unrivalled returns.
“Yields for the fast-food assets that we source for our clients range from 5 per cent to 6 per cent net.”
Dan Wilkie
As featured in the Australian Property Investor magazine