Hot demand drives $28.5m Bunnings sale as another hits the market

A syndicate has paid $28.55 million for an unbuilt Bunnings while another warehouse under construction has hit the market amid growing demand for the hotly-contested investments.

A Victorian syndicate led by The Lowe Group bought the Bunnings at Kempsey on the NSW mid north coast, which the Colliers team behind the sale noted set a record yield for a non-metropolitan, single-tenanted Bunnings investment of 4.19%.

Bunnings is also selling another warehouse being built at Hervey Bay in Queensland’s Fraser Coast region, with that sale being handled by Stonebridge Property Group and Savills.

Both Bunnings investments have 10-year leases with the hardware retailer.

Colliers national director (NSW) of retail investment services James Wilson said there was increased demand from investors seeking to deploy capital into assets with strong covenant security.

“The Bunnings Warehouse Kempsey benchmark result reflects the growing demand of institutional and private capital targeting this asset class,” Mr Wilson said.

Colliers associate director, NSW retail investment services, Alex James-Elliott said there were more than 135 enquiries about Bunnings Kempsey during the four-week expressions of interest campaign, conducted during NSW COVID lockdown restrictions. The interest came from syndicators as well as institutional and private investors.

“The campaign generated incredible interest with multiple parties delivering offers, highlighting the high level of capital targeting Bunnings Warehouse investments,” Mr James-Elliott said.

Bunnings investments were already highly sought-after before the pandemic but COVID increased demand for the warehouses, on the back of the home improvement trend and housing boom.

According to Colliers, 11 freestanding Bunnings Warehouse investments worth more than $412 million worth have transacted so far in 2021.

The growing investor appetite was driving core capitalisation rates below 5% for both metropolitan and regional Bunnings investments, Colliers said.

Private and institutional investors as well as syndicates are chasing Bunnings investments. Picture: realcommercial.com.au/sold

Mr Wilson said the strong level of purchaser competition continued to highlight the increased depth of purchasers and pent-up demand for this retail sub-sector.

“Colliers has transacted circa-$360 million in value of Bunnings Warehouse-anchored investments nationally in 2021, including Bunnings Warehouse Eastgardens, which set the national record yield of 4.15% when acquired by Newmark Capital,” Mr Wilson said.

“However, the Bunnings Warehouse Kempsey campaign revealed new and emerging private and institutional capital, further driving competitive tension.”

Bunnings Kempsey was sold on a pre-sale investment structure, with the 11,000sqm store due for completion in mid-2022.

Bunnings Hervey Bay is also being sold via a fund-through structure, where the development is sold before completion.

Stonebridge partner Philip Gartland said construction has commenced and the new 17,420sqm store is expected to be completed in the fourth quarter of 2022.

“The demand for Bunnings Hervey Bay is likely to be significantly enhanced by the investor’s ability to acquire the land prior to practical completion, whereupon they will inherit a brand-new asset,” Mr Gartland said.

“The Bunnings asset class has proven to be very tightly held and thinly traded,” he added.

The hardware retailer’s strong performance during COVID has increased interest in Bunnings investments. Picture: realcommercial.com.au/sold

Stonebridge partner Justin Dowers said Bunnings’ strong performance during the pandemic has increased interest in the warehouse investments.

“The market for Bunnings Warehouse investments has further improved over the last 12 months given the robust performance of the Bunnings business, regardless of lockdowns,” Mr Dowers said.

Savills national director of retail investments Peter Tyson said Bunnings Hervey Bay was expected to attract enormous interest and competition.

“We are experiencing ongoing and increasing investor appetite for high quality long-leased assets, which continues to drive yield compression,” Mr Tyson said.

“The ASX-listed Wesfarmers subsidiary Bunnings Group is quite clearly one of the most highly sought-after lease covenants in today’s marketplace.”

Bunnings continues to be one of the most hotly-contested retail investments. Picture: realcommercial.com.au/sold

Bunnings investments are rarely offered through a public sale, with Bunnings Kempsey only the fourth to be sold on-market this year.

Property investment group Charter Hall added to its large portfolio of warehouses leased to Bunnings with the $48.8 million purchase in August of Adelaide’s Bunnings Munno Para West, which Colliers noted was the first metropolitan Bunnings Warehouse to be publicly marketed since 2019.

A Melbourne family paid $22.2 million for a newly-opened Bunnings in Queensland’s Plainland in a Burgess Rawson portfolio auction in June, while a Sydney-based private investor paid $11 million for a Bunnings in the NSW town of Young in May after an on-market campaign by Colliers.

Expressions of interest for Bunnings Hervey Bay, the fifth Bunnings investment to be publicly marketed in 2021, close on 28 October.