Regional cities attracting unprecedented Large Format Retail investment success

Research by Savills indicates that Large Format Retail and Neighbourhood Sales accounted for 54% (in dollar terms) of the $5.2 billion worth of retail investment sales over the 12 months to March 2021.

Yield compression over the last 12 months with both Neighbourhood Shopping Centres and Large Format Retail Centres along the east coast reached lows of 5.25% as at March 2021.

“We are seeing record results in regional locations, particularly for Large Format assets tenanted by top tier brands,” said Burgess Rawson National Director Billy Holderhead.

For example Spotlight Plaza in Sale, in the Gippsland region of Victoria, was sold for $4.55 million to a first time Chinese investor. This equates to approximately 5.2% yield.

Spotlight Plaza provided a total net annual income of approximately $240,000. It was positioned on a 6,774 sqm landholding and underpinned by a 10-year gross lease to Spotlight and 3 boutique shops.

Other recent results include a newly constructed Bunnings at Plainland, Queensland sold for $22.2 million in June.

“This result achieved $3.5 million above project feasibility numbers and $2.2 million above the auction day reserve,” said Mr Holderhead.

“Overall, the Plainland sale achieved a national record yield of 4.21%, despite no stamp duty concessions in Queensland.

“This followed another outstanding result in May when an Officeworks in Albury was sold for $10.95 million. The sale achieved a record regional yield of 4.79%, smashing previous benchmarks by 80 basis points.

“Once again, this was despite no stamp duty concessions in NSW either,” explained Mr Holderhead.

Another recent example of downward pressure on yields is the Ballarat Lifestyle Centre in Delacombe, Victoria which Leedwell Property leased on behalf of Troon Group.

“This asset was returning an annual net income of $740,490 from five separate tenancies and was sold in February for $12.39 million to a Melbourne-based private investor,” said Leedwell Property Partner Chris Parry.

“It was a record-breaking yield for a multi-tenanted regional Large Format Retail asset of 5.98%.

“And Homebase Wagga was also sold for $46 million in January 2021,” recounted Mr Parry.

“The 20,000-square-metre centre at 7-13 Hammond Avenue, East Wagga Wagga is anchored by Harvey Norman, Spotlight, Fantastic Furniture and Officeworks.

“The site is over 5.6 hectares and achieved a yield of 7.4%, with the fully leased centre generating a net income of $3.4 million.

Chris Parry explains that given the current point in the property and economic cycle, including disruptions from COVID-19, the investor community have two fundamental drivers which must be adequately met for them to meet current record low yields – security of income and income growth.

“Investors understand the security of income piece for the asset class.

“Income growth has largely been underpinned by a tightening of vacancies in Large Format Retail centres, fixed increases typically associated with Large Format Retail leases, and other economic drivers such as increased spending by Australians who are not spending money overseas and spending on big ticket items instead.

“As a result, the strong investor demand in late 2020 for Large Format Retail assets below $100m has continued into 2021, which is keeping downward pressure on yields to record lows.”

Overall, there is increased interest from local and international investors in regional hubs across Australia given the growing opportunities outside of metropolitan cities.

When coupled with long leases to national tenants, it makes a healthy investment.