Strong investor interest in discount department stores Target and Big W

A Target and a Big W are attracting strong interest from investors chasing properties leased to the well-known discount department store retailers.

The Target in Sunbury in greater Melbourne and the Big W in the town of Mudgee in central west New South Wales are on the market through Savills.

Savills director of retail investments Rick Silberman said the sought-after investments do not come on the market that often.

Part of the attraction for investors is the leases to ASX-listed companies Wesfarmers, which owns Target, and Woolworths Group, which owns Big W. The Big W property also has a BWS liquor store, owned by ASX-listed drinks and hospitality business Endeavour Group.

Properties like the Target in Sunbury are sought-after for their leases to ASX-listed companies. Picture: realcommercial.com.au/for-sale

“Anything that’s leased to ASX-listed tenants – whether it’s Target, Officeworks, Bunnings, Coles, Woolworths – the standalone investments tend to be pretty rare,” Mr Silberman said.

“They tend to automatically garner quite strong interest in them.

“The fact that they’re single-tenanted, which means they’re minimal management investments, is typically something that’s preferred by passive investors. So they tend to be quite popular.”

Private investors as well as private funds and syndicators have been looking at Target Sunbury.

Savills national director Steven Lerche said Big W Mudgee is also attracting strong interest, given its Woolworths-backed lease plus the BWS lease to Endeavour Group.

“There’s good interest in blue-chip covenants and off the back of that, if it’s a supermarket, a liquor shop or a discount department store, there generally is a good amount of private investor interest,” Mr Lerche said.

“You also get some interest from syndicators and fund managers.”

Private investors as well as funds and syndicates want the blue-chip covenants of properties like Big W Mudgee. Picture: realcommercial.com.au/for-sale

Discount department stores have attracted strong investor interest during the pandemic. 

The 5219sqm Big W Mudgee building, which opened in 2005, sits on a 7931sqm site. Savills said the property is fully leased with 89% of the income secured by Big W and BWS, while there is also a Muffin Break outlet and EB Games store. 

Savills said it is an easily-managed investment with a rare ‘whole of land’ lease to Woolworths, excluding the speciality shop area.

Mr Lerche said there are another four years to run on the Big W lease, noting the retailer invested about $1.5 million in a store upgrade in 2021.

The Big W store in Mudgee recently underwent an upgrade. Picture: realcommercial.com.au/for-sale

Mr Lerche expected the strong growth in regional areas during the pandemic, plus increased domestic tourism, to add to the Mudgee CBD property’s attraction.

Target Sunbury, which opened in 2009, has a gross lettable area [GLA] of 5150sqm. It has a current net income of $791,475 per annum, with two years remaining on the current lease term.

Mr Silberman said the retail investment also had significant repositioning potential in a well-established and growing trade catchment in one of Melbourne’s biggest growth areas.

While the property may continue as a Target store in the future, Mr Silberman said the asset is also attracting interest from another pool of buyers interested in the large big-box site’s redevelopment or repositioning potential.

“We’ve got a number of developers looking at this asset,” he said.

Target Sunbury is attracting interest from both retail investors and developers. Picture: realcommercial.com.au/for-sale

Mr Silberman said Target Sunbury has a price guide of more than $11 million.

No price guide has been publicly released for Big W Mudgee, although Mr Lerche said the agents were using the recent sale of a long-established Target store in Bendigo as a benchmark.

Mr Lerche and Mr Silberman, along with Ryder Commercial managing director Mark Ryder, sold the freestanding Target in the regional Victorian city for $19.9 million in late November.

Target Bendigo sold on a record yield of 5%, which Mr Silberman said was a national benchmark for a discount department store investment.

The Target in Bendigo sold for $19.9 million on a 5% yield. Picture: realcommercial.com.au/sold

The store with a GLA of 6863sqm had a long net lease plus options. Mr Lerche said Target Bendigo was sold on behalf of a private owner to another private Sydney buyer.

Mr Lerche said the large site in a major regional city, at a time when the desire for a lifestyle change during COVID drove a big regional shift, contributed to the strong result.

Mr Lerche added the Savills agents brokered the off-market sale of Woolworths in Wagga Wagga for $20 million to Adelaide fund manager Parkstone in December, with the deal settled in April.

He said Woolworths Wagga Wagga sold on a yield of 4.25%, whereas the yield for a discount department store like Big W Mudgee was expected to be at least 100 basis points above that. “It gives the investor a better return.”

Woolworths operates 176 Big W stores across Australia.

Wesfarmers decided in mid-2020 to close or convert dozens of its 285 Target stores to overhaul the then-struggling chain. Some large format Targets were converted to Kmarts while about 50 or half of the Target Country stores scheduled for closure in regional areas became smaller format K Hubs.

The changes to the Target store network were completed in 2021. Wesfarmers now has 130 large format Target stores, about 270 Kmart stores and 56 K Hubs.

The Sunbury store is one of 130 large format Target stores around Australia. Picture: realcommercial.com.au/for-sale