Record prices for ‘pandemic-proof’ supermarkets as sector soars

Private investors are dominating the market, as they chase both the steady income on offer and the long leases to supermarket giants.

The smaller centres have also avoided the problems that had dogged larger shopping complexes, particularly in city areas, during the crisis.

A series of sales sparked expectations of even further price rises with the most recent deals done in the Victorian towns of Swan Hill and Kyabram.

Coles Swan Hill sold for around $20.075 million. Picture: realcommercial.com.au/sold

The Coles Swan Hill Shopping Centre was scooped up by a private group for about $20.075m on a yield of 5.08%.

Located in the heart of the Murray River, 338km north of Melbourne’s CBD, the 3452sq m centre was sold via Stonebridge Property Group’s Justin Dowers, Kevin Tong and Philip Gartland.

The property occupied an 8230sq m town centre site and comprised of a Coles supermarket, Liquorland and four speciality shops.

“The attraction for regional supermarkets and shopping centres is continuing to grow, especially those on traditional net leases and witnessing rental growth with the supermarket being in percentage rent,” Mr Dowers said.

Mr Tong said the asset drew interest from international Asian investors and they were chasing assets in key regional hubs.

The firm has also handled the sale of Woolworths Kyabram which was picked up by a private investor for $23.8m on a yield of 4.84%.

The property comprises of a Woolworths supermarket and BWS on a 7195sq m site.

The sale was only the second Victorian freestanding supermarket in 2021, highlighting the lack of supply.

The sales come on the back of a regional Victorian Coles and as investors chase “pandemic-proof” supermarkets. Private investor DeGroup snapped up Coles Woodend for $33.3m at a record price for a regional Victorian freestanding supermarket investment.

Mr Dowers said sentiment for this type of investment had heightened, particularly due to an increase in supermarket sales performance.

“This further cements these investments as the go-to recession or pandemic-proof investment, similar to that of certain logistics assets,” Mr Dowers said.

DeGroup was among 14 parties that made formal offers for the 3780sqm supermarket, which was built by the retailer’s development arm Coles Group Property Developments in late 2018.

The sale price represented a 4.31% yield.

The $33.3 million sale was a record price for a regional Victorian freestanding supermarket investment. Picture: realcommercial.com.au/for-sale

DeGroup recently bought the CS Square shopping centre in Melbourne’s Caroline Springs from Lendlease for $136.5 million. It also owns the Sanctuary Lakes Shopping Centre, The Village Bacchus Marsh and Somerville Central shopping centres, all in Victoria.

In the second supermarket deal announced at the weekend, a local investor paid $19.15 million for a Woolworths Metro and three specialty stores below Pace Development Group’s 76-apartment residential complex in the inner Melbourne suburb of Ascot Vale.

An investor bought the Woolworths Metro and three retail stores for $19.15 million. Picture: realcommercial.com.au/for-sale

Pace said there was fierce competition for the 2253sqm site during the expressions of interest process, managed by Stonebridge and JLL agents.

There were more than 300 enquiries from private local and offshore investors and 15 interested parties. The deal went through three rounds of negotiations, before closing above its $17 million expected price.

A local investor, who entered the retail investment market in 2017, secured the entire ground floor comprising the new 1894sqm Woolworths Metro supermarket as well as hospitality, beauty and fitness tenancies.

Mr Tong said the result was evidence of the market’s increasingly strong appetite for suburban retail opportunities.

Mr Tong said the current low interest rate environment was a strong driver of buyer interest, along with the opportunity to capitalise on the 5.5% stamp duty before the new premium rate of 6.5% announced in the Victorian budget came into effect on 1 July.

“What was clear throughout the sales process was the sentiment for this type of investment continues to grow, particularly due to the strong supermarket covenant in addition to the pandemic-proof nature of a Woolworths supermarket,” Mr Tong said.

JLL retail investments senior director Stuart Taylor said the initial yield of 4.63% set a new industry benchmark, being the sharpest yield for a strata-titled neighbourhood shopping centre in Victoria on record.

“The price and yield also reflect new records for a ‘Woolworths Metro’ investment nationally, highlighting the incredible demand for non-discretionary retail assets in the current market,” Mr Taylor said.

Pace commercial director James Simpson said the result at the Pace of Ascot Vale project paved the way for further acquisitions by the group and meant it could bring forward plans at other key projects across Melbourne.

The coronavirus pandemic has strengthened investor demand for supermarkets with blue-chip, daily needs tenants like Woolworths and Coles.

Mr Dowers said the compression of yields in the retail asset class was continuing.

– With additional reporting from Ben Wilmot.